GIFT  OF 


HISTORICAL  SKETCH  OF 
GOVERNMENT  OWNERSHIP 
OF  RAILROADS  IN 
FOREIGN  COUNTRIES 


By  W.  M.  ACKWORTH 


Historical  Sketch  of 
Government  Ownership  of 
Railroads  in  Foreign  Countries 


By  W.  M.  ACWORTH 


Presented  to  the 

Joint  Committee  of  Congress  on  Interstate  Commerce 

SENATOR  NEWLANDS  (Nevada)  Chairman 
Washington,  D.  C.,  May,  1917 


CONTENTS 


INTRODUCTORY    3,  4,  5,  6,  7 

PRUSSIA   7,  8,  9,  10,  11,  31,  32,  33,  34,  35,  37,  38,  39,  43,  48 

SWITZERLAND    11,  12,  13 

ITALY   13,  14,  15 

AUSTRALIA  15,  16,  48,  49,  55,  56,  57 

RUSSIA 17,  18 

AUSTRIA    17,  18 

INDIA 17,  18 

HOLLAND 18,  19 

FRANCE    19,  20,  21,  22,  23,  24,  25 

NEW  SOUTH  WALES 35,  36,  37 

25,  26,  27,  28,  29,  38,  39,  40,  41 
GREAT  BRITAIN   42,43,44,45,46,47,48,49,50 

SOUTH  AFRICA 52,  53,  54 

BELGIUM] 57,  58,  59,  60,  61,  62 

CONCLUSION   . 62,  63 


HISTORICAL  SKETCH  OF 

GOVERNMENT  OWNERSHIP  OF  RAILROADS 

IN  FOREIGN  COUNTRIES 


Introductory 

On  the  24th  of  May,  1830,  the  first  few  miles  of  the  Baltimore  & 
Ohio  Railroad  were  opened  for  traffic.  Four  months  later,  on  Sept. 
15,  came  the  opening  of  the  whole  thirty  miles  of  the  Liverpool  and 
Manchester.  A  yet  more  conspicuously  dramatic  event,  for  not  only 
did  this  line  connect  two  of  the  greatest  cities  in  the  world,  but  a 
Cabinet  Minister  was  killed  by  one  of  the  first  trains  run.  And  so, 
at  the  outset,  the  United  States  and  England,  the  two  countries 
where  capital  was  most  abundant  and  most  venturesome,  accepted, 
half  unconsciously  no  doubt,  the  principle  to  which  they  have  since 
adhered;  and,  relying  on  that  spirit  of  individual  enterprise  which 
centuries  of  history  had  called  forth  and  fostered,  entrusted  the 
development  of  their  railways  to  the  unaided  energy  of  private  citi- 
zens organized  into  voluntary  corporations. 

"The  English  and  American  maxim  is,"  says  Mr.  A.  T.  Hadley, 
President  of  Yale,  in  his  well-known  book,  "Railroad  Transportation, 
its  History  and  its  Laws,"  "that  whatever  can  be  done  without  Govern- 
ment, should  be  thus  done.  The  Continental  principle  is  that  whatever 
can  be  done  by  Government,  should  be."  How  far  operating  a  railroad 
was  a  thing  that  could  be  done  by  Government,  must  have  been  a 
difficult  question  to  solve  in  the  early  days.  For  though  construction 
and  maintenance  of  roads  and  canals  had  long  been  recognized  as  a 
Government  function,  no  Government  had  ever  monopolized  the  car- 
riage of  traffic  on  these  highways ;  and  at  a  very  early  stage  in  railway 
history  it  became  clear  that  the  owner  of  the  road  must  in  this  case 
have  also  the  exclusive  right  of  carriage  along  it. 

But  abstract  considerations  are  apt  to  go  to  the  wall  when  prac- 
tical questions  press  for  instant  solution.  On  October  4,  1830,  Bel- 

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gium,  which  had  in  1815  been  made  by  the  Treaty  of  Vienna  part 
of  the  kingdom  of  Holland,  declared  its  independence.  And  if  inde- 
pendence, economic  as  well  as  political,  was  to  be  secured,  if  Bel- 
gium was  to  hold  its  own  against  Holland,  if  Antwerp  was  to  be 
able  to  compete  with  Rotterdam,  it  was  urgent  that  the  great  traffic 
route  from  the  Rhine  and  the  German  frontier  through  Liege  and 
Brussels  to  the  Scheldt  and  the  North  Sea  should  be  under  Belgian 
control.  A  railway  must  be  built.  If  built  by  private  capital,  the 
capital  would  almost  certainly  be  Dutch.  Accordingly,  as  early  as 
1834,  the  Belgian  Parliament  resolved  that  the  railway  should  be 
built  and  worked  by  the  Government.  And  by  1840  upwards  of  200 
miles,  the  main  trunk  lines  of  the  Belgian  State  system  as  it  exists 
today,  were  already  in  operation.  And  so  today  we  have  behind 
us  three-quarters  of  a  century  of  history  during  which  the  character- 
istics good  and  bad  of  State  and  private  railways  can  be  compared 
and  contrasted. 

Comparative  Statistics 

"Most  countries  own  their  own  railways."  This  statement,  true 
but  misleading,  is  often  made.  Bulgaria  owns  its  railways,  1,204 
miles  in  all.  The  United  States  has  more  than  200  times  the  Bul- 
garian mileage,  all  owned  by  private  corporations.  Bulgaria  counts 
as  a  country;  the  United  States  counts  as  one  also.  According  to 
the  latest  figures  in  the  Archvu  fur  Eisenbahnwesen,  the  official  organ 
of  the  Prussian  State  Railway  Administration,  there  were  in  Europe 
at  the  end  of  1913  216,396  miles,  of  which  116,111  (rather  more  than 
half)  were  State  railways.  There  were  in  the  whole  world  nearly 
700,000  miles  of  railway  of  which  less  than  one-third  were  State 
railways.* 

The  capital  invested  in  railways,  according  to  the  same  author- 
ity, amounted  to  208  billions  of  marks,  or  $49,547,680,000.  It  is 
not  possible  to  work  out  the  respective  proportions  of  State  and 
private  capital.  Suffice  it  to  say  that,  whereas  33  of  the  Nations 
enumerated  own  their  railways  in  whole  or  in  part,  the  United 
States  and  Great  Britain,  where  the  railways  are  all  in  private  hands, 
account  between  them  for  more  than  half  of  the  world's  total  rail- 
way capital.  The  Archvu  gives  no  figures  of  traffic,  of  work,  that  is, 
done  for  the  public.  But  Mr.  Slason  Thompson  in  his  Railway 
Statistics  for  U.  S.  A.  for  the  year  1915  (p.  41),  states  that  the 
twenty-five  principal  countries  of  the  world  have  187,530  locomo- 


*The  exact  figures  are  690,138  and  225,914  miles  respectively. 

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tives,  of  which  89,668  (almost  half)  are  in  the  United  States  and  the 
United  Kingdom,  while  out  of  5,816,441  freight  cars  these  two 
countries  have  3,123,660*  (a  good  deal  more  than  half).  On  the 
whole,  having  regard  to  the  enormously  greater  capacity  of  an  en- 
gine or  a  freight  car  in  the  United  States  than  elsewhere,  it  is  prob- 
ably safe  to  make  the  broad  statement  that  two-thirds  of  the  railway 
mileage  of  the  world  has  been  built;  two-thirds  of  the  railway  capital  of 
the  world  has  been  provided;  and  two-thirds  of  the  current  railway 
ivork  of  the  world  is  done  by  private  enterprise;  and  only  the  remaining 
third  by  National  undertakings. 

It  has,  however,  already  been  pointed  out  that,  if  the  nations  of 
the  world  were  polled  great  and  small,  and  assigning  to  each  nation 
one  vote,  as  at  the  Hague  Convention,  a  considerable  majority 
would  be  found  to  have  decided  in  favor  of  entire  or  partial  State 
ownership.  The  United  States  and  the  United  Kingdom  are  the 
only  nations  of  the  first  rank  who  own  no  railways.  Spain,  Turkey, 
and  Greece,  among  the  less  important  European  countries,  are  in  the 
same  position.  Every  other  European  nation  and  most  of  the  extra 
European  countries  own  some  at  least  of  their  railways,  though 
several  of  them,  and  those  not  the  least  important,  British  India, 
for  instance,  and  Holland  have  handed  over  the  working  of  the  na- 
tional railways,  partly  in  the  case  of  India,  wholly  in  the  case  of 
Holland,  to  private  companies.  Mexico  is  set  down  in  the  Archiv 
as  owning  its  railways.  But  in  fact  the  Mexican  Government  is 
not  the  owner  but  only  the  majority  shareholder,  a  shareholder  who, 
as  long  as  Mexico  was  an  organized  community,  was  content  to 
vote  the  election  of  a  board  of  directors  put  forward  by  the  private 
minority  holders  of  the  railway  stock. 

Changes  of  Ownership  and  the  Causes 

Another  point  should  be  noted.  There  is  no  country  which  has 
throughout  its  history  kept  its  whole  railway  system  in  its  own 
hands.  In  Belgium  in  1860  the  State  lines  were  less  than  half  of 
the  whole  mileage.  In  1870  the  State  proportion  had  fallen  to  lit- 
tle more  than  one-quarter.  Prussia  at  the  same  date  was  still  a 
country  of  mixed  ownership,  as  the  Scandinavian  countries  are  still. 
But  after  the  war  with  France  in  1870  Belgium  began  to  buy  up 
the  Private  Companies ;  and  Bismarck  inaugurated  a  new  policy  in 
Germany.  He  attempted  to  acquire  the  private  lines  for  the  new 
German  Empire.  Foiled  in  this  attempt  by  the  local  particularism 


*These  figures  take  no  account  of  the  freight  cars  in  the  United 
Kingdom,  estimated  at  500,000  as  a  minimum,  which  are  in  the  service  of 
the  railways  but  the  property  not  of  the  railway  companies  but  of  private 
individuals. 


of  the  separate  States,  he  carried  through  in  Prussia  a  thorough- 
going policy  of  nationalization ;  and  his  policy  was  followed  by  the 
other  German  States  within  their  own  jurisdiction.  Today  private 
ownership  in  Germany  is  almost  extinct,  and  the  railways  in  each 
several  State  of  the  Empire  are  the  property  of  that  State.  Ger- 
many's example  was  contagious.  In  recent  years  the  Russian  Gov- 
ernment has  bought  out  a  good  many  companies.  Austria  has 
carried  the  same  process  even  further.  Belgium  has  acquired  all 
the  private  lines  of  serious  importance.  In  1898  Switzerland  na- 
tionalized its  railways.  Italy  did  the  same  in  1906;  Japan  in  1907. 
Last,  but  not  least,  in  1908  the  French  Government  took  over  the 
Western  Railway,  one  of  the  six  great  systems  among  which  France 
had  been  districted  since  the  beginning  of  its  railway  history.  Even 
though  on  the  other  hand  within  the  same  period  Brazil  and  several 
of  the  Central  American  States  sold  to  private  companies — mainly 
as  an  available  asset  to  satisfy  clamorous  creditors — railways  which 
they  had  owned,  it  is  evident  that  the  idea  of  nationalization  has 
been  in  the  ascendant  in  recent  years.  How  far  does  history  help 
us  to  explain  the  fact? 

President  Hadley  wrote  in  1886 : 

"The  motives  which  have  led  governments  to  extend 
the  sphere  of  their  business  activity  have  been  three : 

1.  To  increase  their  own  political  influence. 

2.  To  make  up  for  the  lack  of  private  enterprise. 

3.  To  avoid  the  abuses  incident  to  private  manage- 
ment." 

Thirty  years  have  elapsed  since  this  was  written,  and  in  the 
light  of  subsequent  experience,  perhaps  the  case  may  now  be  stated 
as  follows : 

Governments  go  into  the  railway  business  for  three  reasons. 

1.  For  political  reasons.    These  reasons  may  be  either  external 
or  internal.     External  reasons  are  to  obtain  control  of  an  instru- 
ment of  war  that  can  be  used  either  for  aggression  or  for  defence, 
or  to  prevent  the  control  of  this  instrument  by  capitalist  subjects 
of  another  possibly  hostile  power ;  or  again  to  be  able  to  use  the 
railway  tariffs  as  an  auxiliary  in  support  of  the  policy  embodied  in 
the  customs  tariffs  of  the  country.    The  main  internal  reasons  are 
either  to  unify  the  nation  or  to  centralize  authority  or  to  obtain 
new    sources    of    revenue    independent    of    the    taxes    voted    by 
Parliament. 

2.  To  make  up  for  the  lack  of  private  enterprise. 

3.  With  the  idea  of  procuring  for  their  citizens  better  condi- 

6 


tions  (lower  rates,  greater  facilities,  more  impartial  treatment,  etc.) 
than  private  enterprise  has  given  or  is  expected  to  give. 

It  would  require  a  volume  to  tell  in  full  the  events  which  led 
up  to  nationalization  even  in  any  one  country,  to  enumerate  the  vari- 
ous reasons,  and  to  estimate  the  comparative  value  to  be  assigned 
to  each.  But  the  outline  of  the  story  can  be  briefly  told. 

Nationalization  in  Prussia 

Prussia,  the  leading  instance  of  State  ownership,  as  being  at 
once  the  largest  and  usually  regarded  as  the  best  example  of  an 
efficient  National  railway  system,  must  be  dealt  with  first.  At  a 
later  stage  in  this  paper  we  shall  have  to  consider  two  questions  of 
first-rate  importance. 

1.  Are  the  Prussian  railways  really  efficient  when 
judged  by  the  standard  of  comparable  private  under- 
takings ;  and 

2.  Assuming  for  the  sake  of  argument  that  the 
Prussian  railways  are  efficient,  is  their  efficiency  under 
an  autocratic  Government  any  ground  for  expecting 
that  National  railways  would  be  equally  efficient  under 
the  democratic  form  of  government  that  exists  in  the 
United  States  and  the  United  Kingdom? 

For  the  moment  we  are  only  concerned  with  the  history  of  the 
nationalization  policy  inaugurated  by  Bismarck. 

When  railways  first  came  into  existence,  Germany  was  only  a 
"geographical  expression."  Each  State — there  were  some  two  score 
of  them — was  practically  an  independent  sovereignty.  At  the  out- 
set several  of  the  most  important  States  of  the  second  rank,  Bavaria, 
Wirtemberg,  Baden  and  Saxony,  followed  the  example  of  Belgium. 
The  Grand  Duchy  of  Mecklenburg  offers  a  curious  example  of 
vacillation.  At  first  its  railways  were  in  private  hands;  then  they 
became  the  personal  property  of  the  Grand  Duke ;  then  in  1878, 
just  at  the  time  when  Prussia  was  nationalizing  its  railways,  they 
passed  back  into  private  hands ;  and  finally,  in  1890  they  were  ac- 
quired by  the  State.  Speaking  broadly,  one  may  say  that  in  the 
richer  and  more  commercially  developed  parts  of  Germany  the  rail- 
ways were  in  private  ownership ;  in  the  more  backward  agricultural 
districts  they  were  in  the  hands  of  the  various  State  Governments. 
This  is  well  exemplified  by  the  history  of  the  kingdom  of  Prussia.* 


*The  King  of  Prussia  is,  under  the  constitution  of  1870,  also  German 
Emperor.  But  Prussia  still  remains  a  separate  State.  It  is  much  as  though 
the  Governor  of  the  State  of  New  York  was  always  also  President  of  the 
United  States.  But  New  York  is,  in  population,  less  than  one-tenth  of  the 
United  States.  Prussia  is  three-fifths  of  Germany. 

7 


At  an  early  date  private  railways  .were  constructed  in  Westphalia, 
along  the  Rhine,  and  connecting  the  Rhine  and  Hamburg  with 
Berlin.  But  private  enterprise  hesitated  to  build  railways  over  the 
poor  country  from  Berlin  eastwards,  and  the  State  had  to  under- 
take the  task.  So  that  almost  from  the  beginning  Prussia  had  ex- 
perience of  State  railways.  Then,  after  the  war  with  Austria  in 
1866,  Prussia  annexed  Hanover,  Hesse-Cassel  and  other  smaller 
States,  and  so  entered  into  possession  of  a  considerable  additional 
mileage  of  State  railways. 

Then  came  the  war  with  France  in  1870,  resulting  in  the  unifica- 
tion of  Germany  under  the  leadership  of  Prussia.  And  Bismarck, 
in  order  to  cement  together  the  newly  formed  Empire,  attempted 
to  acquire  all  the  railways  of  Germany  for  the  Empire  as  one  single 
unit.  But  the  feeling  for  State  rights,  especially  in  the  South,  was 
too  strong  even  for  Bismarck.  The  kingdoms  of  Bavaria  and  Sax- 
ony replied  to  the  Prussian  proposal  by  promptly  taking  into  their 
own  hands  such  private  lines  as  existed  in  their  territories.  Foiled 
in  this  attempt,  Bismarck  determined  at  least  to  nationalize  all  the 
Prussian  railways.  Probably  he  had  a  stronger  case  for  his  action 
than  has  ever  existed  at  any  time  in  any  other  country.  The  private 
systems  were  comparatively  small  and  of  very  different  financial 
strength.  The  shape  of  Germany,  the  fact  that  traffic  passed  in  all 
directions  over  its  frontiers,  the  fact  that  it  possessed  no  dominating 
central  city  such  as  Paris  or  Vienna  or  London — all  these  causes 
had  resulted  in  a  condition  of  what  might  be  called  railway  anarchy. 
There  was  no  uniformity  of  tariffs,  scarcely  even  of  operating  regu- 
lations and  conditions.  While  traffic  from  abroad  was  attracted  to 
round-about  routes  by  reduced  rates,  often  accompanied,  it  was 
alleged  by  secret  rebates,  the  local  rates  were  high,  and  the  ex- 
change of  traffic  between  two  neighboring  systems  was  actually 
discouraged. 

In  the  Session  of  1879  the  Ministry  submitted  to  the  Prussian 
Parliament  an  elaborate  memorandum  in  support  of  the  policy  of 
nationalizing  the  railways  remaining  in  private  hands.*  It  mar- 
shalled with  great  skill,  and  applied  to  the  special  case  of  Prussia, 
all  the  familiar  arguments  in  favor  of  railways  nationalization.  It 
began  by  emphasizing  the  importance  of  railways  for  military  pur- 
poses— it  is  interesting  to  observe  that  the  "military"  note  is  struck 
hard  at  the  outset — and  for  the  development  of  trade.  It  went  on 
to  declare  that  various  abuses  were  inseparable  from  private  man- 
agement. These  abuses  it  described  as  (1)  the  existence  of  numer- 


*Begriinding  des  Gesetzentwurfes  betreffend  den  Erwerb  mehrerer 
Privateisenbahnen  fur  den  Staat.  Abgeordneten  Hauses  Verhandlungen 
Session  1878-1880,  Acktenstiick.  No.  5. 

8 


ous  concerns  of  doubtful  solvency  and  restricted  capacity  of  service, 
(2)  abuse  by  the  concessionaires  of  their  privileged  position,  (3) 
opposition  to  desirable  reforms,  (4)  complicated  and  arbitrary  varia- 
tions in  their  methods  of  organization,  (5)  chaos  of  tariffs,  (6) 
quarrels  and  waste  resulting  from  the  fierce  competition  of  numer- 
ous separate  administrations. 

Perhaps  it  is  desirable  at  this  stage  to  bring  the  allegation  that 
all  these  abuses  are  inseparable  from  private  management  to  the 
test  of  nearly  forty  years  of  subsequent  history  and  to  deal  with 
them  seriatim  as  follows:  (1)  There  are  no  concerns  of  doubtful 
solvency  and  restricted  capacity  among  the  private  railway  com- 
panies of  France,  and  none  of  more  than  trifling  importance  in  Eng- 
land. (2)  Appears  to  mean  that  a  company  strives  to  gain  an  ade- 
quate net  revenue  before  it  will  reduce  its  rates,  which  is  true.  But 
as  the  Prussian  memorandum  lays  down  in  the  strongest  terms 
the  obligation  of  a  State  system  to  do  the  same  thing,  and  as  the 
Prussian  Government  has  for  many  years  offered  an  unyielding 
opposition  to  any  reduction  of  rates,  while  it  has  extracted  from 
passengers  and  shippers  a  net  revenue,  which,  after  paying  interest 
in  full  of  the  railways'  debt,  yields  in  normal  times  a  sum  of  some 
fifty  million  dollars  towards  the  general  expenses  of  Government, 
the  abuse — if  it  be  an  abuse — does  not  seem  to  be  confined  to  private 
railways.  (3)  In  answer  to  this  charge  it  is  sufficient  to  say  that  it 
is  the  private  railways  of  England,  France  and  the  United  States 
which  have  led  the  world  in  improvements,  while  it  would  be  diffi- 
cult to  mention  a  single  reform  for  which  the  world  is  indebted  to 
the  State  rail  ways' of  Prussia.  (4)  As  has  been  said,  had  this  charge 
been  confined  to  the  private  railways  of  Prussia,  there  was  a  con- 
siderable foundation  for  it.  But  it  applies  neither  to  France,  Eng- 
land nor  the  United  States.  In  all  these  countries  the  private  com- 
panies have  worked  out  among  themselves  uniform  codes  of  rules 
in  reference  to  operation,  construction  of  equipment,  interchange 
of  traffic,  and  everything  else  required  to  avoid  interruption  of 
through  service.  (5)  As  for  chaos  of  tariffs,  the  French  tariffs  are 
simpler  and  more  logical  than  those  of  Prussia,  and  for  all  ordinary 
traffic  they  are  uniform  throughout  the  whole  of  France.  Perhaps 
the  most  scientific  tariff  in  the  world  is  that  which  for  very  many 
years  has  ruled  in  the  Trunk  Line  Territory  of  the  United  States 
with  its  simple  and  easily  intelligible  New  York-Chicago  basis.  (6) 
As  for  "quarrels  and  waste,"  quarreling  is  only  a  bad  name  for 
competition.  Competition  may  or  may  not  be  a  good  thing.  But 
it  is  not  inseparable  from  private  ownership.  The  French  com- 
panies have,  with  negligible  exceptions,  never  competed  with  one 

9 


another,  while  the  English  have  in  large  measure  ceased  to  do  so. 
Competition  would  probably  have  much  more  largely  diminished 
in  the  United  States  also,  had  not  the  deliberate  policy  of  Congress 
been  to  keep  it  alive.  So  far  as  competition  implies  waste,  that  is, 
the  expenditure  of  money  that  in  the  absence  of  competition  would 
not  have  been  spent,  one  cannot  have  omelettes  without  breaking 
eggs.  Prussia  has  abolished  competition.  -Her  railway  accounts 
give  us  no  reason  to  think  she  has  thereby  abolished  waste.  But 
with  this  point  it  will  be  necessary  to  deal  hereafter. 

To  return  to  the  memorandum.  The  Prussian  ministry  go  on 
to  say  that  as  early  as  1873  a  Special  Commission  had  reported  that 
a  universal  State  System  should  be  regarded  as  the  ultimate  aim 
to  be  sought.  They  then  go  on  to  set  down  the  advantages  of  a 
single  unified  management.  These  they  summarize  as  follows: 

Avoidance  of  the  construction  of  competing  lines. 

A  reduction  of  the  numbers  of  officers  and  staff  and 
of  the  amount  of  correspondence. 

Unification  of  tariffs  and  train  schedules. 

Simplification  of  dealing  with  damage  claims. 

Provision  of  interchange  stations. 

Better  use  of  equipment. 

Avoidance  of  duplications  of  service  and  of  round- 
about routing  of  traffic  resulting  in  higher  operating 
costs  and  consequently  higher  rates. 

It  is  the  duty  of  the  State,  says  the  memorandum,  to  secure  to 
the  public  rates  which  shall  be  low,  steady  and  uniform.  ^It  is  also 
important  to  the.  State  that  the  railway  tariffs  should  correspond 
with  the  fiscal  policy  of  the  country  and  not  be  allowed  to  neutral- 
ize the  customs  tariff.  Assuming,  then,  the  memorandum  goes  on 
to  say,  that  the  railways  of  the  country  must  be  in  a  single  hand, 
this  object  may  be  attained  in  four  different  ways.  (1)  A  single 
private  company  may  both  own  and  operate,  (2)  a  private  company 
may  operate  the  lines  which  the  State  owns,  (3)  the  State  may  op- 
erate all  the  private  owned  companies,  (4)  or,  lastly,  the  State  may 
both  own  and  operate  the  whole  system.  And  it  is  for  this  last 
solution  that  the  memorandum  declares.  Confidence  is  expressed 
that  the  zeal  of  the  staff  will  suffice  to  render  unnecessary  the  stimu- 
lus of  competition.  The  State,  it  is  said,  having  no  shareholders 
greedy  for  their  annual  dividend,  can  afford  to  take  longer  views 
than  a  company.  But  it  must  continue  to  charge  rates  sufficient  to 
cover  expenses,  interest  and  sinking  fund  and  the  "current  expenses 
of  the  State."  Whether  this  meant  what  it  said,  or  whether  it  only 
meant  the  liabilities  of  the  State  in  its  capacity  as  railway  owner, 
it  is  impossible  to  decide. 

10 


This  much,  however,  is  certain.  The  Act  as  it  passed  the  Prus- 
sian Parliament,  contrary  to  what  had  generally  been  understood 
during  its  progress,  contained  no  express  provision  that  railway 
revenues  should  be  used  only  for  railway  purposes.  And  ever  since, 
the  railways  have  been,  to  use  the  favorite  phrase  of  domestic 
critics,  "the  milch  cow  of  the  Treasury." 

On  the  whole  it  is  abundantly  clear  that,  though  there  were  con- 
siderable abuses  of  private  ownership  in  Prussia,  and  though  the 
desire  for  unification  of  management  both  from  the  commercial  and 
the  operating  point  of  view  was  not  without  weight,  the  main  reason 
for  Bismarck's  action  was  of  a  political  nature.  It  is  in  harmony 
with  all  Prussian  history  that  the  importance  of  military  considera- 
tions and  the  necessity  of  making  public  control  paramount  in  the 
life  of  the  country  should  weigh  above  all  other  considerations  with  a 
Prussian  statesman ;  and  after  the  war  with  France  and  the  creation 
of  the  German  Empire  these  considerations  might  be  expected  to 
have  even  greater  weight  than  at  any  other  time. 

Switzerland 

Were  it  not  that  the  scale  is  so  disproportionate  as  to  make  a 
comparison  almost  laughable,  for  the  railroads  of  the  United  States 
earn  as  much  money  in  two  days  as  the  Swiss  Railway  system  in 
a  twelvemonth  Swiss  history  would  be  a  stronger  argument  than 
most  that  are  put  forward  for  the  nationalization  of  American  rail- 
roads. Switzerland  has  owned  and  operated  its  railways  for  more 
than  fifteen  years.  Switzerland  is  a  democracy.  And  Switzer- 
land, though  the  results  fell  very  far  short  of  the  expectations  enter- 
tained at  the  time  of  purchase,  managed  its  railways,  on  the  whole, 
with  fair,  if  by  no  means  with  brilliant  success,  until  the  breaking 
out  of  the  European  war  upset  the  entire  life  of  the  country. 

Switzerland  is  a  union  of  three  nationalities,  German,  French 
and  Italian.  But  the  German  population  is  a  good  deal  more  than 
two-thirds  of  the  whole;  and  naturally  therefore  German  political 
and  social  theories  have  great  influence.  As  early  as  1891,  the 
Swiss  legislature  passed  a  law  authorizing  the  purchase  of  one  of 
the  principal  railways,  the  Swiss  Central.  But  this  law  was  defeated 
on  a  referendum  by  a  majority  of  more  than  two  to  one.  The  move- 
ment, however,  in  favor  of  nationalization  continued.  In  1897  an 
Act  for  the  purchase  of  all  railways  except  lines  of  purely  local  inter- 
est passed  the  two  Chambers,  with  majorities  of  98  to  29,  and  25 
to  17  respectively;  and  this  time  on  a  referendum  there  was  a  two- 
to-one  majority  in  favor.  The  memorandum,  prefixed  to  the  Bill 
repeated  the  arguments  in  favor  of  State  ownership  in  words  that 


might  almost  have  been  copied  from  the  Prussian  memorandum 
which  has  already  been  dealt  with.  There  was,  however,  one  addi- 
tional argument  which  apparently  had  as  much  weight  as  all  the 
others  put  together.  Swiss  Railway  Shares,  it  was  stated,  had 
of  late  years  ceased  to  be  held  as  permanent  investments,  and  had 
passed  in  large  measure  into  the  hands  of  speculators  who  were 
not  Swiss  citizens  but  foreigners.  And  this  dangerous  state  of 
affairs  could  not  be  allowed  to  continue.  It  had  in  fact  been  found 
that  in  three  out  of  five  companies  the  majority  of  the  registered 
shareholders — and  under  a  law  of  1895  "registered"  shareholders 
alone  were  entitled  to  vote — were  foreigners. 

It  is  not  necessary  to  go  into  the  history  of  the  purchase.  Three 
of  the  principal  roads  were  transferred  to  the  State  in  1901,  a  fourth 
in  1903,  and  the  last,  the  Gotthard,  in  1909.  The  purchase  price 
which  was  fixed  in  every  case  by  agreement,  exceeded  by  about 
11  per  cent,  the  estimate  of  the  cost  originally  put  forward  by  the 
Government.  Warned  by  Prussian  history,  the  Act  laid  down 
categorically  that  the  Railway  Budget  was  to  be  absolutely  and 
completely  independent  of  the  ordinary  budget  of  the  State.  Any 
surpluses  obtained  were  to  be  devoted  solely  to  railway  purposes, 
either  to  be  used  as  capital  or  to  be  devoted  to  reduction  of  rates 
and  improvement  of  service. 

In  the  early  days  of  nationalization  there  was  a  very  serious  in- 
crease in  expenses,  due  partly  to  a  more  generous  service,  but 
mainly  to  increased  wages  and  reduced  hours  for  the  staff.  For  the 
four  years  following  on  1903  the  cost  of  staff  increased  year  by  year 
as  compared  with  the  previous  year  by  the  following  percentages : 
10.16,  7.08,  9.99,  9.27.  Between  1900  and  1911  the  number  of  the 
staff  increased  46  per  cent.,  while  wages  increased  92  per  cent.  In 
1912  a  further  increase  of  less  than  1  per  cent,  in  number  of  staff 
corresponded  with  an  increase  of  no  less  than  10.2  per  cent,  in  wages. 
The  increase  in  the  number  of  the  staff  was,  no  doubt,  justified  by 
a  25  per  cent,  increase  in  road  mileage,  and  an  increase  of  100  per 
cent,  in  passenger  traffic  and  of  67  per  cent,  in  freight  traffic.  But 
the  rise  of  over  100  per  cent,  in  the  wages  bill  upset  the  equilibrium 
entirely.  The  operating  ratio  went  up  from  65.53  per  cent,  in  1903 
to  71.03  in  1908.  In  three  years,  after  meeting  operating  expenses 
and  the  charges  of  the  debt,  there  was  an  accumulated  deficit  of  over 
$2,500,000. 

The  management  took  fright.  They  cut  down  renewals,  reduced 
services,  increased  rates  and  fares,  stopped  automatic  increases  in 
staff  wages,  and  by  refraining  from  filling  up  vacancies  gradually 
reduced  the  number  employed.  The  public  and  the  employees  sub- 
mitted, not  without  natural  reluctance,  and  the  financial  equilibrium 

12 


was  restored.  After  placing  to  sinking  fund  an  average  of  about 
a  million  dollars  per  annum  the  railways  just  cover  interest  on  their 
debt  at  the  rate  of  3l/2  per  cent.  But  the  rosy  views  of  the  authors 
of  State  purchase  have  been  far  from  materializing.  They  promised 
reductions  of  rates  and  fares,  and  with  the  great  increase  in  traffic 
density  ought,  one  cannot  but  think,  to  have  been  able  to  obtain 
them.  The  average  fare  was  indeed  reduced  by  13}/2  per  cent,  be- 
tween 1900  and  1911.  But  freight  rates  were  rather  worse  than 
stationary.  The  ton-mile  rate  was  slightly  under  3  cents  a  mile  in 
1900;  in  1911,  it  was  slightly  over.  The  authors  of  the  purchase 
further  estimated  that  the  profits  to  be  realized  would  suffice  to 
extinguish  the  railway  debt  within  60  years.  In  fact,  the  sum  paid 
for  the  acquisition  of  the  railways  was  $205,493,880.  And  the  debt 
at  the  date  of  the  last  account,  with  one-quarter  of  the  period  ex- 
pired, so  far  from  being  reduced  had  risen  to  $270,132.80. 


Italy 


The  history  of  Italian  railways  is  much  too  complicated  to  be 
even  sketched  in  outline  here.  An  admirable  summary  coming 
down  to  1884  will  be  found  in  Hadley's  "Railroad  Transportation". 
Italy  has  experimented  with  every  conceivable  form  of  railway 
policy.  It  has  tried  State  ownership  and  operation,  private  owner- 
ship and  operation,  State  ownership  with  private  operation,  and 
now,  for  the  last  ten  years,  it  has  reverted  to  both  ownership  and 
operation  by  the  State.  The  country  has  been  hampered  in  its 
railway  development  by  various  causes ;  geographically,  by  its  shape 
and  by  the  mountainous  divisions  between  east  and  west;  politi- 
cally, by  the  fact  that  not  until  1870  did  the  whole  of  Italy  become 
a  united  kingdom ;  and  financially,  by  the  fact  that  the  economic 
development  is  backward,  the  people  very  poor,  and,  at  least  till 
quite  lately,  subject  to  a  crushing  burden  of  taxation. 

As  the  Kingdom  of  Italy  gradually  grew  together  out  of  its  com- 
ponent States,  it  was  necessary  to  make  railways  to  cement  its  unity. 
Further,  the  State  was  compelled  to  take  over  the  liability  for  rail- 
ways which  other  people  had  constructed.  The  Austrians,  for  ex- 
ample, had  built  railways  in  Lombardy  and  Venetia,  but  when  they 
were  expelled  from  those  provinces,  in  1859  and  1866  respectively, 
the  State  had  to  buy  out  the  Austrian  company,  or  else  leave  two  of 
the  richest  provinces  still  subject  to  the  domination  of  the  hated 
foreigner. 

Betwen  1866  and  1885  the  bulk  of  the  railways  of  the  country 
were  in  the  hands  of  the  State.  In  the  latter  year,  as  the  result  of 
an  inquiry  by  a  Commission  which  sat  from  1878  to  1881,  studied 

13 


the  history  of  the  railway  world  in  exhaustive  detail,  and  embodied 
its  report  in  seven  quarto  volumes,  the  Italian  railway  system  was 
handed  over  to  two  great  operating  companies  on  a  60  years' 
lease,  terminable  at  the  end  of  20  or  40  years—  the  Mediterraneo 
and  Adriatico  respectively.  The  essential  idea  was,  as  indeed 
the  names  of  the  Companies  imply,  that  one  system  should  operate 
along  the  western  coast  and  the  other  along  the  eastern.  Each 
company  was,  either  by  its  own  lines  or  by  means  of  trackage 
rights,  to  have  access  to  the  great  centres, — Milan,  Florence,  Rome, 
Naples, — and  in  this  way  it  was  hoped  that  competition  would 
secure  adequate  services  and  reasonable  rates. 

The  leasing  system  was  not  a  success,  mainly  because  both  the 
lessors  and  lessees  took  too  sanguine  a  view  of  the  prospects  of  the 
future.  Almost  at  the  outset  it  became  evident  that  additions  and 
improvements,  especially  additional  rolling  stock,  were  urgently 
needed ;  and  there  were  no  additional  net  receipts  to  pay  the  interest 
on  the  capital  required.  Why  should  the  Government  find  this 
money  for  railways  not  in  their  hands ;  and,  on  the  other  hand  why 
should  the  Companies  take  the  risk  on  so  short  a  tenure?  There 
was  another  very  serious  factor.  The  railway  staff,  who  had  great 
political  influence,  and  who  assert,  probably  not  without  reason, 
that  they  were  overworked  and  under  paid,  were  clamoring,  and  in 
some  cases  even  striking,  for  better  conditions  of  service.  And  last 
but  not  least,  the  rolling  stock  was  grossly  inadequate,  and  what 
there  was,  was  almost  falling  to  pieces.  In  the  result  Parliament, 
with  a  sudden  resolve  to  cut  a  knot  which  it  could  not  untie,  on 
April  22nd,  1905  determined  to  take  over  the  railways  as  from  the 
following  1st  July. 

Undoubtedly  as  agencies  of  public  service  the  Italian  railways 
have  been  considerably  improved  in  the  last  ten  years.  The  number 
of  locomotives  increased  in  eight  years  from  3,580  to  5,322,  and  the 
number  of  freight  cars  from  69,000  to  105,000.  And  the  improve- 
ment is  even  greater  than  these  figures  would  indicate,  for  old  stock 
has  been  scrapped  and  replaced  by  new  and  efficient  equipment; 
lines  have  been  improved  and  doubled  on  a  considerable  scale ;  and 
the  services  undoubtedly  much  improved.  But  the  financial  results 
are  very  serious,  especially  for  a  country  so  poor  as  Italy.  The  de- 
mands of  the  staff  which  the  railway  administration  has  found  itself 
powerless  to  resist,  have,  in  the  eight  years,  1906  to  1913,  implied  an 
additional  expenditure  of  $18,330,440.  In  the  same  period  the 
number  of  staff  increased  from  121,000  to  149,000,  equal  to  23  per 
cent.  Per  kilometre  of  road  worked  there  were  9.3  men  at  the 
earlier  dates  and  10.9  at  the  later.  But  while  numbers  increased  23 

14 


per  cent.,  cost  increased  57  per  cent.;  in  other  words,  the  average 
wage  per  employee  increased  27  per  cent. 

The  gross  receipts  rose  in  the  eight  years  from  $78,724,416  to 
$120,595,000,  or  well  over  50  per  cent.,  while  the  length  of  line 
operated  remained  practically  unchanged.  Per  train-mile  the  in- 
crease was  from  $1.41  to  $1.63  or  about  16  per  cent.  With  much 
greater  density  of  traffic  and  a  considerable  increase  in  earnings 
per  train-mile,  one  would  naturally  have  expected  a  substantial 
improvement  in  the  operating  ratio,  once  road  and  rolling  stock  had 
been  brought  into  good  order.  But  the  opposite  has  been  the  case. 
In  the  first  year  of  nationalization  the  operating  ratio  was  73.4;  in 
no  subsequent  year  has  it  fallen  below  79.5  per  cent.;  and  for  the 
three  years  1911-13  it  averaged  84.4  per  cent.  Each  year  shows  a 
substantial  advance  in  operating  costs  over  the  year  preceding  it. 
The  figure  in  the  first  year  of  the  period  was  $57,885,600;  in  the 
last  it  is  $102,264,560,  an  increase  of  over  78  per  cent. 

The  final  result  is  that,  whereas  in  the  financial  year  1906-7  the 
railways  paid  over  to  the  Treasury  $9,796,366  as  a  return  on  a 
capital  of  $1,091,404,045,  which  is  roughly  1  per  cent,  in  the  last 
year  they  only  returned  $5,402,656  on  a  capital  that  meanwhile  had 
risen  to  $1,374,975,952  which  is  roughly  2-5ths  of  1  per  cent.  An 
attempt  was  made  in  1909  to  raise  the  rates  but  the  Ministry  failed 
to  carry  their  proposals  and  went  out  of  office. 

How  far  he  Italian  Government  is  satisfied  with  the  existing 
situation  may  be  judged  from  a  significant  fact  which  has  not 
hitherto  received  the  publicity  which  it  merits.  In  at  least  two 
cases  just  before  the  war  concessions  had  been  granted  to  a  private 
enterprise  which  was  to  take  over  a  portion  of  the  existing  State 
railway,  to  build  an  extension  with  the  help  of  substantial  State 
subsidies,  and  then  work  on  its  own  account  both  sections  as  one 
undertaking. 

Australia 

The  most  conspicuous  instance  of  railways  being  constructed 
by  the  State  because  private  enterprise  refused  to  undertake  the 
task  is  to  be  found  in  the  Australasian  Colonies  of  Great  Britain. 
The  Australasian  population  is  of  pure  British  stock,  and  when  the 
necessity  of  railway  building  became  manifest,  as  true  Britishers 
they  naturally  expected  private  enterprise  to  undertake  the  task. 
But  local  capital  was  scant  and  England  was  far  away.  Moreover, 
Australasia  was  in  the  throes  of  the  gold  fever  resulting  from  the 
discovery  of  the  rich  fields  of  Ballarat  and  Bendigo.  And  such 
local  capital  as  was  available  was  not  likely  to  be  put  into  railway 
enterprise  to  earn  a  possible  5  per  cent,  when  the  gold  fields  offered 

15 


prospects  of  a  fortune  in  a  few  months.  And  accordingly  as  the 
need  of  railroads  was  imperative,  the  Governments  of  the  separate 
colonies  borrowed  money  on  their  own  credit  and  set  to  work  to 
construct  their  own  State  railway  systems.  Once  embarked  on  such 
ownership  they  have  never  gone  back  from  it.  Certain  local  lines 
have,  from  time  to  time  been  built  by  private  capital,  but  they  have 
never  been  important.  On  the  one  hand  neither  local  nor  English 
capital  has  been  over  anxious  to  go  into  the  business,  and  on  the 
other,  the  State  railways  have  been  jealous  of  interference  by  private 
companies.  Speaking  broadly  the  seven  separate  States  which 
make  up  Australasia  have  among  them  over  20,000  miles  of  railway 
owned  and  worked  by  the  respective  Governments.  And  it  must 
be  frankly  said  that  public  opinion  is  entirely  in  favor  of  this  system. 
No  proposal  to  divest  the  States  of  their  ownership  would  be  lis- 
tened to  for  a  moment.  And,  having  regard  to  the  well-known  fact 
that  State  socialism  has  been  carried  further  in  Australia  than  in 
any  other  part  of  the  world,  this  is  not  surprising. 

Whether  the  Australian  public  are  really  competent  to  judge 
how  far  they  have  got  a  good  bargain  may  be  illustrated  by  the 
following  anecdote.  Some  years  ago,  a  distinguished  railway  man 
went  from  America  to  assume  the  post  of  Chief  Commissioner,  in 
other  words  President,  of  one  of  the  most  important  Australian 
State  Systems.  After  he  had  been  in  charge  for  a  year  or  two,  he 
sent  to  a  railway  friend  at  home  statistics  showing  the  improve- 
ments and  economies  effected  under  his  management.  The  friend, 
in  acknowledging  the  receipt,  pointed  out  that  the  figures  furnished 
did  not  include  the  ton-miles  of  traffic,  and  therefore  neither  receipts 
nor  cost  could  be  worked  out  on  a  ton-mileage  basis,  and  asked 
whether  it  was  possible  that  a  railway  man  accustomed  to  American 
methods  failed  to  keep  statistical  records  in  this  form.  The  answer 
was  in  effect  as  follows:  "I  have  the  ton-mileage  figures.  I  dare 
not  publish  them.  If  I  did  publish  them,  they  would  show  a  ton- 
mile  rate  so  excessive  as  compared  with  other  countries  similarly 
situated,  where  the  traffic  is  mainly  in  agricultural  products  carried 
long  distances,  that  public  opinion  would  enforce  a  sweeping  re- 
duction in  rates  and  bankrupt  the  undertaking."  It  may  be  added, 
as  proving  that  the  Chief  Commissioner  in  question  had  good  reason 
for  desiring  to  avoid  a  comparison,  that  two — New  South  Wales  and 
South  Australia — out  of  the  seven  Australasian  State  Railway  sys- 
tems do  publish  ton-mileage  statistics.  They  show  ton-mile  earn- 
ings of  2.20  cents  and  2.12  cents  respectively.  The  corresponding 
figure  for  the  private  railways  of  Canada  is  0.75  cents,  and  for  the 
private  railways  of  the  United  States  0.738  cents. 

16 


Russia,  Austria  and  India 

Russia,  Austria  and  India  may  be  grouped  together  as  three 
countries  where  a  mixed  system  of  State  and  private  ownership  pre- 
vails. They  are  all  alike  in  the  fact  that  political,  and  especially 
military  reasons  compelled  the  State  to  make  railways  which  private 
enterprise  was  not  prepared  to  undertake.  They  are  alike  too  in 
the  fact  that  the  tendency  has  swayed  back  and  forth  as  between 
State  and  private  ownership.  Austria  at  one  time  sold  to  private 
companies  a  number  of  railways  that  had  been  built  by  the  State. 
Nowadays  having  bought  most  of  them  back  again,  it  owns  80  per 
cent,  of  the  total.  One  incident  of  the  transfer  deserves  to  be  re- 
lated. The  Kaiser  Ferdinand  Nordbahn  was  an  old  and  very  rich 
company.  Its  dividend  for  the  previous  five  years  had  averaged 
over  12  per  cent.  It  was  taken  over  in  1906.  In  1910  the  President 
of  the  Austrian  Chamber  of  Deputies  described  the  result  as  fol- 
lows :  "We  have  always  been  in  favor  of  the  State  taking  over  the 
railways,  but  if  we  had  been  able  to  foresee  the  results  of  the  man- 
agement I  assure  you  we  would  have  hesitated  a  little  longer.  We 
are  still  in  favor  of  the  principle,  but  it  does  seem  to  us  that  our 
government  has  performed  a  remarkable  feat  when  it  has  succeeded 
in  creating  a  deficit  on  the  Northern  Railway.  The  government 
have  enlisted  an  army  of  new  employees ;  they  have  gone  much  too 
far  in  the  reduction  of  hours  of  labor;  instead  of  commercial  man- 
agement they  have  appointed  lawyers  to  posts  that  require  business 
men  or  experts ;  they  have  established  an  entirely  unpracticable 
bureaucracy.  At  the  present  moment  we  are  face  to  face  with  a 
deficit  of  $25,000,000.  There  would  be  no  deficit  at  all  if  the  re- 
turn from  our  railways  were  that  which  it  ought  to  be.  I  repeat 
that  absolute  imbecility  has  characterized  the  taking  over  of  our 
railways.  We  must  introduce  business  ideas  into  the  government 
service."  Russia,  too,  has  not  only  built  State  railways  but  taken 
over  private  railways.  Of  late  years,  however,  the  tendency  seems 
to  be  in  the  direction  of  private  enterprise,  subsidized  and  closely 
controlled  by  the  Government,  which  at  the  present  time  owns  and 
works  two-thirds  of  the  whole  mileage.  In  India,  several  of  the 
most  important  lines  were  built  by  private  enterprise  with  State 
guarantees  of  dividend  for  a  short  term.  At  the  end  of  the  term, 
when  these  railways  passed  into  the  hands  of  the  State,  they  were 
leased  back  to  the  old  Companies  as  operating  Contractors.  At 
the  moment  of  writing,  an  exhaustive  investigation  is  proceeding, 
which  seems  likely  to  result  in  the  adoption  of  a  definite  policy  for 
the  whole  country.  British  merchants  in  India  are  apparently 
strongly  in  favor  of  retaining  the  private  companies.  Indian  native 

17 


opinion,  appears,  so  far  as  it  is  vocal,  to  be  in  favor  of  State  owner- 
ship, the  reason  being  that  it  is  thought  that  Indian  ideas  would  have 
more  influence  on  the  policy  of  a  Government  Department  on  the 
spot,  than  on  that  of  a  Board  of  Directors  sitting  in  London.  This 
last  argument  raises  a  point,  the  importance  of  which  we  have 
already  seen  in  the  cases  of  Belgium  and  Switzerland.  Evidently 
the  argument  against  private  ownership  is  stronger  where  the  capital 
is  foreign  than  where  it  is  found  within  the  country  itself. 

A  point  of  importance  should  here  be  noted.  It  is  true  that  the 
Austrian  Government,  forty  years  ago  divested  itself  of  its  Railway 
Property.  The  Italian  Government  divested  itself  of  the  operation 
though  not  of  the  ownership  as  lately  as  1885.  More  recently,  Brazil 
— as  also  other  less  important  States  in  South  America,  Guatemala 
and  Nicaragua — have  handed  over  some  or  all  of  their  railways  to 
private  companies.  But,  speaking  broadly,  it  is  safe  to  say — subject, 
however,  to  the  possibility  of  an  exception  in  the  case  of  Belgium 
to  be  referred  to  later — that  nowadays,  a  decision  of  a  nation  to 
acquire  its  railways  is  irrevocable.  This  may  be  taken  as  proving — 
it  has  often  asserted  that  it  does  prove — that  no  nation  having 
experienced  the  benefit  of  State  ownership  ever  desires  to  go  back 
on  its  decision.  But  the  argument  cuts  also  the  other  way.  If  the 
decision  be  irrevocable,  and  modern  railway  history  seems  to  indicate 
that  it  is,  it  is  also  well  to  be  quite  satisfied  that  it  is  the  right  de- 
cision before  making  it. 

Holland 

One  country,  small  but  not  unimportant,  has  not  hitherto  been 
mentioned.  In  Holland,  though  some  of  the  most  important  lines 
were  built  by  the  State,  the  operation  has  always  been  wholly  in 
private  hands.  For  many  years,  there  were  in  Holland  three  prin- 
cipal companies ;  the  State  Railway  Company,  the  Holland  Com- 
pany and  the  Dutch  Rhenish  Company.  In  1890,  the  Dutch  Gov- 
ernment made  a  new  departure.  It  bought  up  all  the  lines  which  it 
did  not  own,  and  it  then  apportioned  the  whole  system  anew  be- 
tween two  companies  representing,  respectively,  the  old  State  Rail- 
way and  the  Holland  Companies,  in  such  a  manner  that  each  Com- 
pany had  access  to  every  important  town  in  competition  with  the 
other.  This  system,  which  presumably  was  patterned  on  the  Italian 
System  of  1885,  has  been  in  existence  ever  since.  In  1908  a  motion  in 
Parliament  in  favor  of  nationalization  was  brought  forward  and 
defeated.  A  Parliamentary  Commission  to  investigate  the  question 
was  subsequently  appointed  and  reported  unfavorably.  The  pub- 
lic seem  to  be  satisfied  with  things  as  they  are,  the  passenger  serv- 
ice appears  to  travelers  exceedingly  good,  but  the  financial  result  to 

18 


the  State  is  not  over  satisfactory.  That,  however,  is  perhaps  un- 
avoidable. Holland  is  intersected  everywhere  by  rivers  and  canals, 
which  have  to  be  kept  open  for  drainage  purposes,  and  they  carry 
the  bulk  of  the  heavy  traffic  of  the  country  and  of  the  German 
through  traffic.  The  railways  therefore  have  to  depend  for  a  liveli- 
hood in  the  main  on  passenger  and  high  class  freight.  What  bulk 
freight  they  get,  they  can  only  get  at  exceedingly  low  rates. 

One  further  point  may  be  here  noted.  A  suggestion  has,  from 
time  to  time  been  put  forward  in  various  countries  where  the1  sys- 
tem of  private  ownership  prevails,  that  the  Government  should 
purchase  one  or  more  of  the  private  undertakings,  and  should  run  it, 
partly  as  a  pattern  to  be  followed,  and  partly  as  a  regulating  force 
to  control  the  rates  charged  on  the  private  railways  alongside. 
Some  such  idea  seems  to  be  implied  in  the  recent  papers  pub- 
lished in  the  United  States  by  Mr.  W.  W.  Cook.  The  idea  has  never 
been  carried  into  practical  effect.  It  is  hardly  likely  to  be  seriously 
taken  up  nowadays  in  any  country,  and  under  the  circumstances, 
criticism  is  evidently  superfluous. 

France 

The  railway  history  of  France  stands  by  itself.  Nowhere  is  the 
passion  for  logic  and  the  love  of  symmetry  which  distinguish  the 
French  genius  better  exemplified  than  in  the  history  of  the  French 
Railway  system.  The  ground  plan  of  the  policy  which,  broadly 
speaking,  France  has  followed  ever  since,  was  laid  down  in  a  law 
passed  as  long  ago  as  1842.  There  were  important  developments 
after  the  world  crisis  in  1857,  and  again  in  1878.  And  on  1st  Janu- 
ary, 1909,  the  Government  by  taking  over  one  of  the  six  great  sys- 
tems— the  Western — upset  the  symmetry  of  the  original  plan.  But 
with  this  exception,  throughout  the  whole  history  the  original  plan 
has  stood  firm.  The  whole  country  was  divided  up  among  six  great 
companies,  five  of  which  radiate  from  Paris,  and  the  sixth,  the  Midi, 
serves  the  extreme  South  and  Southwest.  The  development  of  the 
railway  network  has  been  systematic  from  the  outset;  trunk  lines 
first,  then  important  branches,  then  the  less  important  ones,  and 
finally  in  recent  years  a  considerable  development  of  light  secondary 
lines.  Throughout,  the  State  has  guided,  subsidized  and  controlled. 
Each  company  has  a  monopoly  of  its  own  district.  So  far  as  possi- 
ble, the  points  where  the  great  systems  meet  are  arranged — not,  as 
in  Holland,  or  formerly  in  Italy,  at  the  great  towns — but  precisely 
at  the  points  of  least  importance  from  a  traffic  standpoint.  Where 
traffic  is  unavoidably  competitive,  as  for  instance  from  Paris  to 
Central  Switzerland,  which  can  be  reached  either  by  the  Eastern  or 
by  the  Paris  and  Lyons  railway,  arrangements  are  deliberately  made 

19 


to  prevent  competition.  The  Government  controls  all  rates  and  fares 
charged  and  all  services  given,  and  the  Government  approves,  not 
merely  of  pools,  but  of  agreements  by  which  shippers,  attempting  to 
consign  traffic  by  the  route  by  which  the  railway  companies  have 
agreed  the  traffic  shall  not  flow,  are  deliberately  penalized  by  higher 
rates.  At  a  later  stage  of  this  paper,  more  must  be  said  of  the  work 
which  the  French  Railways  have  done,  and  reasons  will  be  given  to 
show  that  the  French  private  companies  have  served  their  public 
at  least  as  well  as  the  Prussian  State  railways  have  served  theirs. 
But  it  belongs  here  to  deal  with  the  history  and  the  results  of  the 
nationalization  of  the  Western  Railway  eight  years  ago. 

For  more  than  thirty  years  the  French  Government  have  owned 
and  worked  a  system  of  lines  in  the  Central  West  of  France.  This 
system  was  not  inconsiderable  in  mileage  (1844  miles),  but  its  dis- 
trict was  purely  agricultural  and  its  traffic  scant.  It  only  reached 
Paris  over  the  lines  of  the  private  companies,  and  even  when  it 
served  important  towns  such  as  Nantes  and  Bordeaux,  it  only 
served  them  by  inferior  routes.  The  financial  results  were  very 
unsatisfactory — the  operating  ratio  over  a  series  of  years  ranged 
between  72  and  83  per  cent — but  in  some  respects,  as,  for  instance, 
admitting  third  class  passengers  on  all  express  trains,  it  gave  to 
the  public  advantages  which  the  private  companies  did  not  give. 

Among  the  great  companies,  much  the  weakest  financially  was 
the  Western.  A  large  portion  of  its  mileage  was  in  Brittany,  one 
of  the  poorest  districts  of  the  country.  It  did  serve  the  town  of 
Rouen,  and  the  very  important  port  of  Havre,  but  the  canalization 
of  the  Seine  diverted  from  the  railway  a  large  proportion  of  the 
valuable  merchandise  traffic  between  Havre  and  Paris.  The  French 
Government  guarantees  the  dividend  on  the. shares  of  all  the  French 
railway  companies,  and  year  after  year,  the  French  Government 
had  to  find  a  considerable  portion  of  the  dividend  to  the  Western 
shareholders.* 

Further,  large  new  capital  expenditure  was  needed,  especially  to 
cope  with  the  enormous  passenger  traffic  of  the  company  in  the 
suburbs  of  Paris.  How  heavy  that  traffic  is  anybody  who  remem- 
bers the  Saint  Lazare  station  in  Paris  will  know.  The  necessary 
capital  could  not  be  raised  without  Government  approval ;  and  Gov- 


*It  should  be  noted  that  only  10  per  cent,  of  the  total  French  railway 
capital  is  in  the  form  of  shares:  90  per  cent,  is  in  the  form  of  bonds  which 
practically,  though  not  formally,  are  guaranteed  by  the  French  Govern- 
ment. The  dividend  on  the  shares  therefore,  though  large  in  percentage — 
it  ranges  from  7  per  cent,  on  the  Western  and  the  Eastern,  and  10  or  11 
per  cent,  on  three  of  the  other  companies,  to  13  per  cent,  on  the  Northern — 
is  not  very  large  in  total  amount.  Broadly  speaking,  the  companies,  other 
than  the  Western,  more  or  less  earn  their  dividends  in  normal  times  without 
State  help. 

20 


ernment  approval,  owing  to  strong  parliamentary  opposition,  could 
not  be  obtained.  Meanwhile  the  service  was  going  from  bad  to 
worse,  and  the  equipment  was  on  its  last  legs.  Something  had  to 
be  done.  Once  more,  the  knot  that  could  not  be  untied  was  cut. 
And  as  from  January  1st,  1909,  the  Government  exercised  its  rights 
under  the  concession,  and  took  over  the  railway,  continuing  to  pay 
the  guaranteed  dividend  to  the  shareholders  in  the  form  of  an  an- 
nuity running  till  the  termination  of  the  concession. 

The  political  history  of  the  transfer  is  distinctly  interesting. 
The  employees  on  the  railway  itself  were  unanimously  in  its  favor. 
And,  as  subsequent  experience  proves,  with  good  reason.  And  the 
whole  strength  of  the  Socialist  party  and  of  Socialist  sentiment  was 
thrown  on  the  same  side.  A  majority  was  secured  for  the  Bill  in 
both  Houses,  though  a  large  majority  of  the  representatives  of  the 
districts  served  by  the  railway  voted  against  it.  The  Bill  passed 
the  Chamber  in  December  1906.  But  it  was  hung  up  in  the  Senate 
for  eighteen  months  till  June  1908,  and  finally  only  passed  by  a 
majority  of  three  votes,  after  M.  Clemenceau,  who  was  Prime  Min- 
ister at  the  time,  had  given  it  to  be  understood  that,  unless  the  bill 
was  passed,  he  would  resign.  And  much  as  the  majority  of  the 
Senate  disliked  nationalization,  at  the  moment  they  disliked  the 
resignation  of  M.  Clemenceau  even  more.  It  may  further  be  added, 
that  according  to  the  French  custom,  the  opinion  of  all  the  Cham- 
bers of  Commerce  in  the  country,  which  are  statutory  bodies,  was 
invited  on  the  measure,  and  that  not  one  single  town  of  more  than 
third-rate  importance  reported  in  its  favor. 

Experience  of  State  Operation  in  France 

Here  in  broad  outline  is  the  story  of  the  result  of  the  transfer.* 
In  the  five  years,  1904-1908.  before  the  transfer  the  gross  receipts 
rose  steadily  from  $37,084,000  to  $42,145,000.  In  the  five  subse- 
quent years  1909-1913,  (the  war  upset  entirely  the  figures  for  1914) 
the  gross  receipts  rose  from  $42,333,000  to  $48,701,000,  a  slightly 
greater  rate  of  increase.  In  the  five  years  before  the  transfer,  the  oper- 


*The  figures  given  above  are  from  official  sources.  The  story  is  mainly 
taken  from  an  article  by  Pierre-Leroy-Beaulieu,  himself  a  Deputy,  in  "The 
State  in  relation  to  Railways."  (P.  S.  King  &  Co.,  London,  1912.)  See 
also  Colson  in  "Revue  Politique  et  Parlementaire"  for  November,  1910,  De- 
cember, 1911,  May,  1913,  and  May,  1914.  The  railway  newspapers  all  over 
the  world  were  full  of  the  story  in  1909  and  subsequent  years. 

Monsieur  Colson,  an  engineer  by  training,  was  formerly  head  of  the 
Railway  Department  of  the  Ministry  of  Public  Works  and  is  now  President 
of  the  Section  of  the  Council  of  State  (a  body  partly  executive  and  partly 
judicial)  which  deals  with  all  questions  concerning  transport  by  rail  or 
road  or  water.  His  book,  "Transports  et  Tarifs,"  is  a  recognized  classic  on 
its  subject. 

21 


ating  expenses  rose  from  $20,796,000  to  $28,388,000,  this  last  figure 
being  unduly  inflated  by  the  fact  that,  from  the  date  the  Chamber 
voted  the  acquisition  of  the  railway,  the  staff  became  entirely  de- 
moralized. The  first  year  after  the  acquisition  the  operating  ex- 
penses were  $30,304,000.  The  next  year  they  were  $34,921,000,  and 
the  year  after,  $39,454,000.  In  1912  they  had  reached  $41,800,000 
and  for  1913  they  fell  back  to  $41,478,000.  In  other  words,  to  earn 
a  net  revenue  increased  by  31  per  cent.,  the  operating  expenses  in- 
creased by  100  per  cent.  The  net  revenue  was  never  below  $13,- 
757,000  in  the  worst  year  of  Company  rule.  It  fell  to  $5,352,000 
after  the  Government  had  been  in  possession  four  years.  The 
operating  ratio,  which  had  risen  from  56.4  to  67.8  under  the  Com- 
pany, was  for  the  next  five  years  as  follows:  72.7,  79.9,  87,  89.4 
and  85.2.  It  is  fair  here  to  make  a  qualification.  The  operating 
ratio  had  gone  up  on  all  the  French  railways  between  the  two 
periods.  It  averaged  50.3  for  the  other  five  great  companies  for  the 
years  1905  and  1906,  and  58.4  for  the  two  years,  1912  and  1913.  But 
a  rise  from  50.3  to  58.4  is  one  thing ;  a  rise  from  56.4  to  89.4  is  quite 
another. 

A  main  argument  used  in  Parliament  in  favor  of  transfer  from 
the  company  to  the  State  was  that  the  company  never  did,  and 
never  could,  earn  its  guaranteed  dividend  in  full,  still  less  the  extra 
dividend  which  it  would  be  entitled  to  if  earned ;  that  the  company 
was  accordingly  a  mere  caretaker  and  not  interested  in  financial 
results,  and  did  not  operate,  and  could  not  be  expected  to  operate, 
with  economy.  The  State  on  the  other  hand  would  have  a  direct 
interest  in  operating  economically.  That  was  the  argument.  Here 
are  the  facts.  During  the  last  ten  years  of  company  management, 
the  State  had  to  pay  an  average  of  $2,894,280  a  year  to  meet  its 
liability  under  the  guarantee  to  make  up  the  deficiency  in  net  oper- 
ating income.  During  the  first  three  years  after  the  transfer,  the 
sums  it  had  to  find  under  the  same  head  were  $6,753,320,  $8,875,792, 
and  $14,934,484,  respectively.  For  the  year  1913,  the  figure  was 
$14,752,237. 

Nor  do  these  deplorable  financial  results  tell  the  whole  story. 
The  service  to  the  public  was  absolutely  demoralized.  There  were 
several  very  serious  and  numerous  smaller  accidents,  and  the  staff 
and  the  public  got  so  frightened  that  the  express  trains  on  the  main 
line,  already  the  slowest  in  France,  were  decelerated  down  to  a 
timing  that  had  been  abandoned  as  inadequate  in  1896.  In  addition, 
a  number  of  trains  were  suppressed  altogether.  Punctuality  went 
to  the  winds.  Commuters  on  the  system  in  the  suburbs  of  Paris 
were  compelled  by  their  employers  to  live  elsewhere  because  of  the 
unpunctuality  of  their  arrival  at  their  work.  As  for  the  service  in 

22 


general,  one  figure  will  suffice.     Compensation  for  accidents,  loss 
and  damage,  averaged  some  $400,000  or  $500,000  a  year  in  the  last 
days  of  the  company.     In  1911,  the  figure  was  $2,045,291.     The 
Minister  of   Public   Works   himself  publicly   criticized   the   State 
Administration   as   "a   frightful   fraud."     And   the   Senate   passed 
unanimously  a  resolution  beginning:    "The  deplorable  situation  of 
the  State  system,  the  insecurity  and  irregularity  of  its  workings." 
M.  Leroy-Beaulieu  gives  the  reasons  for  the  "deplorable  situation" 
as  follows :    "In  the  first  place,  it  is  the  abuse  of  formalism  and  red 
tape,  with  all  the  delays  which  follow  and  which  are  directly  in  conflict 
with  commercial  needs.  In  the  second  place,  it  is  the  lack  of  stability. 
The  director  and  all  the  chiefs  of  the  service  change  at  the  will  of 
the  Ministers,  whilst  in  the  private  companies  the  higher  personnel  is 
maintained  a  long  time,  fulfilling  the  same  functions.    It  is  next  the 
political  influence  which  enters  into  the  choice  and  advancement  of 
the  personnel.    It  is,  lastly,  the  lack  of  discipline  which  also  results 
from  the  political  influence  at  work.    From  the  electoral  point  of  view, 
the  loiuer  staff,  being  much  more  numerous,  will  always  have  much 
more  power  than  the  superior  staff.     It  is  always  on  the  side  of  the 
former  that  many  Deputies  will  be  systematically  ranged.     Above 
all,  it  is  impossible  to  be  at  once  controller  and  controlled.    If  one 
of  the  great  French  companies  under  private  management  renders 
poor  service,  the  public  opinion  is  not  slow  to  move  the  public 
power,  and  as  this  has  the  means  to  bring  pressure  indirectly  but 
in  many  ways  upon  the  companies,  they  are  led  to  reform.    On  the 
contrary,  when  complaints  are  made  against  the  State  itself,  the 
administration,  irresponsible,  does  not  listen.    Rather,  it  seems  in- 
dignant that  particular  individuals  or  even  large  associations  should 
dare  to  find  that  all  is  not  perfect.    'I  have  not  seen  without  a  cer- 
tain  astonishment/    said   the    Minister   of   Public   Works    in   the 
Chamber,  'the  Chambers  of  Commerce  criticise  the  actions  of  the 
State  in  its  (their)  reports  upon  the  railways/    The  same  Minister 
has  dismissed  an  employee  from  his  office  who  was  at  the  head  of 
a  section  of  a  passenger  line  which  emitted  protestations  against 
the  delays  on  the  Western  State  service  in  the  Paris  suburbs.    When 
the  Minister  was  reproached  in  the  Senate,  he  declared  himself  ready 
to  do  the  same  again.    One  may  see  how  dangerous  to  the  liberty 
of  citizens  the  extension  of  the  industrial  regime  of  the  State  would 
be,  where  the  number  of  functionaries  would  be  indefinitely  multi- 
plied and  where  they  would  no  longer  have  the  right  to  complain. 
"From  all  points  of  view,  the  experience  of  State  Railv/ays  in 
France  is  unfavorable,  as  was  foreseen  by  all  those  who  had  re- 
flected upon  the  bad  results  given  by  the  other  industrial  under- 
takings of  the  State,  such  as  the  telephones,  matches,  and  many 

23 


others.  The  State,  above  all  an  elective  administration,  cannot  be 
a  good  commercial  manager.  It  works  expensively,  and  is  power- 
less before  its  employees.  The  experience  which  we  have  recently 
gained  has  had  at  least  one  result.  It  has  provoked  a  very  lively 
movement,  not  only  against  the  re-purchase  of  the  railways,  but 
against  all  extension  of  State  industry.  This  result  seems  to  me 
fortunate.  I  hope  this  opinion  will  be  maintained,  and  that  not 
only  we,  but  our  neighbors,  may  profit  by  the  lesson  of  these  facts." 

M.  Leroy-Beaulieu  gives  examples  of  what  has  happened  under 
the  various  heads.  "As  for  formalism  and  red  tape,"  on  the  eve 
of  the  handing  over  of  the  railway  to  the  State,  there  were  1,526 
employees  in  the  Central  Office.  Within  three  years  the  number 
had  increased  to  2,587.  "The  single  service  of  the  Accountant 
General  was  increased  by  70  persons  directly  after  the  repurchase." 
And  this  was  due  partly  to  political  pressure  and  partly  to  excessive 
red-tape.  For  example,  in  the  Caen  division,  the  preparation  of  the 
pay-sheets,  which  under  the  Company  took  nine  persons  three  days 
i=27  days,  under  the  State  Administration  took  twelve  persons  six 
days=72  days.  "According  to  official  documents,  there  are  not  less 
than  96  persons  receiving  a  salary  of  more  than  $1,929.52  in  the 
State  system"  as  against  33  on  the  system  of  a  neighboring  company 
of  much  the  same  mileage  but  with  much  higher  receipts.  In  the 
five  years  from  1908  to  1912,*  the  total  expenditure  increased 
$10,573,770,  of  which  $8,412,707  were  for  salaries  and  wages.  In 
1908,  out  of  every  $19.30  of  receipts,  the  Company  paid  $7.24  in 
salaries  and  wages.  In  1912*  this  figure  was  $9.70.  The  compara- 
tive figure  for  the  five  great  companies  is  only  $5.70.  In  1910,  per 
$192,952  of  receipts,  the  State  railways  employed  235  persons,  the 
private  companies  174. 

Again,  as  the  result  of  the  great  strike  of  October,  1910,  the  Cham- 
ber of  Deputies  voted  a  large  all-round  increase  in  the  wages  of  the 
staff.  Naturally,  the  staff  thought  there  were  shorter  cuts  to  in- 
creases of  wages  than  hard  work.  As  a  sample  of  want  of  ordinary 
business  management  on  the  financial  side,  the  Budget  Commission 
of  the  Chamber  reported  that  it  could  not  draw  up  a  proper  estimate 
?2>r  1912  from  lack  of  the  necessary  accounts.  "The  statements  ad- 
dressed to  the  Budget  Commission  by  the  Administration  were 

manifestly  inaccurate The  great  part  of  the  statements  of 

receipts  and  expenditure  were  found  to  lack  any  sufficient  justifica- 
tion. Thus  as  regards  the  expenditure  upon  personnel,  the  tables 
accompanying  the  statement  only  stated  the  numbers  of  workmen 
and  staff  and  the  amount  of  their  salaries  in  round  figures 


*1912  figures  are  Budget  Estimates  only. 

24 


We  wrote  for  further  statements,  more  particularly  the  numbers  of 
the  personnel.  .  .  .  The  Minister  replied  (three  years  after  the 
railway  had  been  taken  over)  that  the  enumeration  of  employees 
had  not  yet  been  made.  .  .  .  This  example  suffices  to  show  the 
trust  that  may  be  placed  in  the  other  parts  of  the  budget  estimate." 
This  is  not  the  opinion  of  an  outside  and  unfavorable  critic.  It  is 
the  report  of  a  Committee  of  the  Chamber  of  the  same  political 
complexion  as  its  predecessor  which  voted  for  the  purchase,  based 
upon  a  draft  drawn  up  by  a  Deputy  well  known  as  an  advocate  of 
State  ownership. 

One  story  given  by  M.  Leroy-Beaulieu  is  so  striking  as  a  sample 
of  the  highest  quality  of  red-tape  that  it  deserves  to  be  given  at 
length.  It  is  from  a  letter  of  a  stationmaster  read  in  the  Chamber 
of  Deputies :  "In  the  time  of  the  Western  Company,  we  station- 
masters  had  orders  to  use  the  rolling  stock  as  quickly  as  possible, 
and  to  send  to  a  given  station,  all  that  we  did  not  ourselves  require. 
Under  the  State  all  is  changed.  Every  stationmaster  is  forbidden 
to  load  any  wagon  without  the  orders  of  the  distribution  bureau  of 
the  district.  This  bureau  is,  as  is  well  known,  a  new  creation 
specially  designed  for  the  purpose  of  finding  situations  for  so  many 
more  bureaucrats.  Recently,  having  received  two  wagons  loaded 
with  horses,  accompanied  by  an  order  to  send  these  wagons  to  Caen 
after  they  were  unloaded,  I  thought  to  do  well  by  loading  in  these 
two  wagons  200  sacks  of  grain,  which  had  been  waiting  in  the  sheds 
for  several  days  to  go  to  Caen.  But  alas,  I  did  not  know  the  bureau 
of  distribution.  The  next  day  I  saw  my  two  wagons  return,  and  I 
received  at  the  same  time  an  order  to  unload  them.  I  was  reproved 
into  the  bargain  for  excess  of  zeal.  I  had  to  obey  the  order.  That 
evening  I  sent  the  wagons  empty  to  Caen.  Next  day  I  received  two 
others,  also  empty,  in  which  to  load  the  grain." 

The  Lessons  of  Foreign  Experience 

Such  is  an  outline  history  of  the  introduction  of  State  ownership 
in  the  less  important  half  of  the  railway  world.  What  lessons  has 
it  to  teach  for  the  more  important  half,  the  United  States  and  the 
United  Kingdom?  Evidently,  in  these  two  countries  it  will  not  be 
suggested  that  State  ownership  is  necessary  for  political  and  mili- 
tary reasons.  The  consciousness  of  political  unity  needs  here  no 
artificial  stimulus.  The  experience  of  England  since  the  present 
war  began  has  sufficiently  demonstrated  that  a  number  of  inde- 
pendent and  often  competing  private  companies  can  be  welded  to- 
gether at  a  moment's  notice  into  a  homogeneous  system,  and  oper- 

25 


ated  from  the  moment  when  war  is  declared,  with  absolute  success 
as  an  organic  whole,  under  public  control,  on  public  account,  for 
the  public  service. 

Nor  will  it  be  suggested  that  in  these  two  countries  private  enter- 
prise has  fallen  short  of  meeting  the  public  requirements.  On  the 
contrary,  that  England  is  adequately  provided  is  admitted  on  all 
hands.  And  if,  as  is  doubtless  the  case,  the  United  States  still  need, 
and  will  continue  to  need,  fresh  railways  built,  past  experience, 
which  shows  that  in  no  other  countries  have  railways  been  pushed 
so  boldly  in  advance  of  population  as  in  the  States,  gives  every  rea- 
son to  suppose  that  private  enterprise  will  be  able  and  willing  to 
provide  them.  And  it  may  be  added  that  the  country  which  comes 
next  in  this  respect  to  the  United  States — far  in  advance  of  the 
English  colonies  of  Australasia,  with  their  exclusively  State  systems, 
and  of  Russia  or  India,  with  their  immixture  of  State  ownership — is 
Argentina,  also  a  country  wholly  developed,  till  quite  recently,  by 
private  companies. 

Railway  history  conclusively  refutes  the  idea  that  State  owner- 
ship promotes  railway  development.  If  we  consider  countries  where 
the  railways  are  already  making  a  reasonable  return  on  the  capital, 
what  do  we  find?  Belgium  has  notoriously  failed  to  keep  its  rail- 
ways abreast  of  its  rapidly  growing  trade.  The  Prussian  Govern- 
ment has  consistently  for  a  generation  past  forced  the  enormous 
coal  and  iron  traffic  of  Lorraine,  Luxemburg  and  Westphalia  on 
to  the  waterways,  by  refusing  to  build  the  new  lines  necessary  to 
cope  with  the  traffic  by  land.  American  shippers  sometimes  com- 
plain of  shortage  of  equipment.  But  these  complaints  in  times  of 
worst  congestion  are  not  more  bitter  than  those  which  go  up  regu- 
larly every  autumn  from  the  coal  operators  of  the  Ruhr  Revier, 
the  most  important  coal  field  in  Prussia.  In  Australia  the  manage- 
ments of  the  Government  railways  have  boldly  defended  themselves 
in  times  of  bad  congestion  by  claiming  that  the  railways  cannot 
afford  to  keep  sufficient  equipment  to  cope  with  maximum  demand. 
In  the  great  Empire  of  India,  with  a  teeming  population  of  315,000,- 
000  spread  over  an  area  nearly  two-thirds  that  of  the  United  States, 
a  population  which  though  very  poor  is  also  very  industrious,  there 
are  only  some  36,000  miles  of  railway.  That  more  railways  and  im- 
provements of  existing  railways  are  urgently  needed,  is  admitted 
on  all  hands.  Nor  is  it  denied  that  they  would  pay  their  way.  But 
the  Government  refuses  to  allow  private  capital  a  free  hand.  A 
private  company  may  build  branches  as  feeders  of  the  existing 
trunk  lines  on  strictly  regulated  terms.  But  that  is  all.  And  yet  the 
Government  itself  can  only  find  a  few  million  pounds  per  annum  for 

26 


a  work  in  which  scores  of  millions  could  be  profitably  employed. 
The  Dominion  of  South  Africa,  with  a  white  population  of  a  million 
and  a  quarter,  has  a  State  railway  system  of  some  8,000  miles.  In 
the  much  newer  territory  of  Rhodesia  alongside,  company  enterprise 
has  already  provided  2,000  miles  of  railway  for  the  service  of  a 
white  population  of  32,000. 

The  reason  is  obvious.  A  railway  company  exists  for  a  single 
end.  If  an  extension  offers  reasonable  prospect  of  financial  success, 
and  if  capital  can  be  raised  on  reasonable  terms,  a  company  will 
always  build  it.  Even  if  success  is  problematical,  ambition  and  the 
desire  to  forestall  a  possible  intruder  will  usually  turn  the  scale  in 
favor  of  a  forward  policy.  But  a  Finance  Minister  is  in  quite  a  dif- 
ferent position.  Calls  upon  him  for  money  come  in  from  a  dozen 
different  directions.  The  army,  the  navy,  education,  irrigation 
schemes,  social  betterment  and  fifty  things  more,  all  press  their  rival 
claims.  The  money  is  limited.  New  taxes  do  not  conduce  to  popu- 
larity. The  budget  has  to  be  made  to  balance  and  the  railways  go 
short  like  all  the  other  claimants. 

The  experience  of  the  last  few  years  in  the  United  States  has,  it 
must  be  admitted,  shown  that,  under  present  conditions,  private 
capital  is  not  being  found  in  sufficient  quantity  for  extensions  and 
improvements  which  are  urgently  necessary.  And  it  has  been 
argued  therefore  that  the  State  will  be  compelled  to  come  to  the 
rescue  by  taking  over  the  private  undertakings  bodily.  But  this 
is  scarcely  practical  politics.  To  suppose  that  serious  statesmen 
would,  for  this  reason  only,  decide  on  a  step  so  serious  as  railway 
nationalization,  is  to  suppose  the  impossible.  Taking  over  a  quar- 
ter of  a  million  miles  of  railway,  with  $16,000,000,000  net  capital  and 
over  1,800,000  employees,  may  be  a  good  thing  or  a  bad  thing;  but 
it  is  undoubtedly  a  step,  the  seriousness  of  which  can  hardly  be  ex- 
aggerated. To  compare  it  in  importance  with  the  alternative  of 
allowing  the  existing  companies  to  raise  their  rates  by  an  average 
of  a  mill  per  ton-mile,  which  would  make  all  the  difference  between 
poverty  and  affluence  would  be  almost  farcical. 

The  argument  for  State  ownership  in  the  United  States  or  the 
United  Kingdom  can  therefore  be  based  only  on  the  claim  that  the 
substitution  of  Government  for  private  ownership  of  the  existing 
lines  would,  on  the  whole,  secure  better  public  service.  A  dis- 
tinguished English  authority,  Sir  George  Gibb,  has,  in  fact,  put 
the  question  precisely  on  these  lines.  He  has  contended  that,  in 
Anglo-Saxon  countries  at  least,  it  was  entirely  right  that  the  con- 
struction and  development  of  the  railway  system  should  be  left 
to  private  enterprise.  Private  enterprise  is,  he  thinks,  bolder; 

27 


companies  are  more  flexible,  more  ready  to  take  risks  and  to  try 
experiments  in  new  methods,  than  any  State  organization  could  be. 
Moreover — and  the  importance  of  the  point  will  not  be  lost  on  any- 
one who  remembers  that  the  bulk  of  the  American  railways  have  at 
one  time  or  other  passed  through  a  receiver's  hands,  and  that  some 
forty  per  cent,  of  their  share  capital  receives  no  dividend — if  a 
company  improvidently  or  unwisely  invests  its  capital  in  a  non- 
paying  proposition,  while  private  individuals  lose  their  money,  the 
public  is  uninjured.  Capital  borrowed  on  credit  of  the  State  is  a 
permanent  burden  on  the  country  as  a  whole,  whether  or  no  it  earns 
any  net  revenue  to  pay  the  interest.  On  the  other  hand  once  the 
system  is  created  and  substantially  finished,  Sir  George  Gibb,  in 
the  paper  referred  to,  considered  it  an  open  question  whether  State 
or  private  ownership  and  management  should  be  preferred. 

Cost  of  Raising  Capital 

It  is  this  question  therefore  that  we  have  now  to  consider.  It  is 
commonly  claimed,  as  one  of  the  advantages  on  the  side  of  the  State, 
that  it  can  raise  capital  more  cheaply  than  any  private  company.  And 
the  claim  is  not  without  substance.  But  the  advantage  is  not  great. 
The  market  value  of  United  States  Bonds  cannot  be  compared  with 
that  of  first  class  railway  mortgage  bonds,  because  of  the  fictitious 
value  attached  to  the  former  for  bankers'  purposes.  But  in  England 
over  a  series  of  years — though  here,  too,  consols  have  to  some  extent 
had  an  artificial  value — the  interest  on  first  class  railway  debentures  has 
averaged,  perhaps,  half  of  one  per  cent,  above  the  interest  obtainable  on 
Government  obligations.  At  the  moment  of  writing,  while  the  English 
Government  is  borrowing  on  short  term  bonds  at  the  rate  of  six 
per  cent.,  first  class  railway  debentures  are  still  selling  on  the  basis 
of  less  than  5  per  cent,  yield.  And  it  is  only  the  first  charge  securi- 
ties of  railway  companies  which  can  fairly  be  compared  with  the 
Government  stocks;  for  the  income  return  on  junior  securities, 
more  especially  common  stock,  includes  a  more  or  less  considerable 
allowance  for  insurance  against  risk.  Averaging  the  return  on  all 
capital  invested  in  a  successful  private  company,  it  would  un- 
doubtedly be  considerably  higher  than  the  return  paid  to  the  pur- 
chasers of  an  equal  amount  of  Government  Railway  Stock.  But  the 
Government  Stock  would  unquestionably  include  a  considerable 
amount  of  capital  spent  on  railways  not  producing  any,  or  only  an 
inadequate,  income,  which  capital,  as  has  already  been  said,  would 
have  been  in  the  case  of  a  private  company,  either  written  down  in 
market  valuation,  or,  it  may  be,  written  off  entirely. 

28 


Economy  in  Use  of  Capital 

Further,  though  a  saving  of  perhaps  half  of  one  per  cent,  in 
interest  is  not  unimportant  when  the  capital  is  reckoned  in  billions 
of  dollars,  it  may  be  more  than  compensated  for  by  a  greater  pro- 
portional increase  in  the  capital  itself.  Is  this  likely  to  be  the 
case  ?  It  is  certainly  the  common  belief  of  ninety-nine  business  men 
out  of  a  hundred,  both  in  America  and  in  England,  that  the  Gov- 
ernment gets  less  value  for  its  money  than  a  private  trader.  So 
far  as  it  is  possible  to  compare  one  country  as  a  whole  with  another, 
it  certainly  looks  as  if  this  belief  were  justified  in  railway  experi- 
ence. The  railroads  of  the  United  States  were  capitalized  in  1915 
(deducting  inter-corporate-ownership)  at  $66,447  per  mile.  The 
State  railroads  of  New  South  Wales  and  Victoria  were  capitalized 
at  $77,253  and  $65,774  per  mile  respectively.*  It  must  be  admitted 
that  the  Australian  roads,  whose  construction  engineers  had  beec 
brought  up  to  regard  English  standards  as  universally  applicable, 
are  more  substantially  and  expensively  built  than  many  of  the 
Western  roads  of  the  United  States.  On  the  other  hand,  the 
American  figure  includes  the  trunk-line  railroads  of  the  East,  with 
a  standard  of  construction  and  a  mass  of  equipment  to  which  the 
Australian  roads  can  offer  no  analogy.  On  the  whole  it  is  safe  to 
say  two  things.  If  an  experienced  railway  man  came  to  America 
for  the  first  time,  and  made  an  exhaustive  examination  of  the  United 
States  railroads,  he  would  marvel  when  told  that  so  magnificent  a 
machine  had  been  built  up  at  a  capital  cost  of  only  $66,447  per  mile. 
If  an  English  or  an  American  business  man,  fortified  by  the  ex- 
pert's opinion,  were  asked  whether  he  thought  his  own  Govern- 
ment could  have  carried  out  the  work  as  cheaply,  it  is  equally  cer- 
tain what  his  answer  would  be. 

Summing  up  then  the  subject  of  capital  cost,  it  would  appear 
that,  whereas  on  the  one  hand  the  State  can  obtain  its  capital  some- 
what cheaper,  on  the  other  hand  private  enterprise  makes  each 
dollar  of  capital  go  further.  And  the  advantage  and  the  disadvan- 
tage may  fairly  be  set  off,  the  one  against  the  other. 

*The  cost  per  mile  of  the  railways  in  the  other  Australasian  colonies, 
and  also  in  the  Cape  of  Good  Hope,  is  much  lower  than  in  New  South 
Wales  and  Victoria.  But  they  are  all,  with  one  partial  exception,  narrow 
gauge  lines,  and  cannot  be  compared  with  the  American  railroads.  The 
cost  of  the  Canadian  private  roads  is  very  much  the  same  as  the  American 
average.  The  cost  of  the  National  Trans-continental  railway  recently  con- 
structed by  the  Canadian  Government  was  estimated  to  be  $39,083.  It  has 
actually  cost  $99,000. 

29 


Quality  and  Cost  of  Service 

The  vital  question,  however,  is  not  concerned  with  construction 
and  capital  cost,  but  with  the  day-to-day  working  of  the  actual 
existing  system.  Will  the  public  on  the  whole  get  better  services 
or  lower  rates,  or  possibly  both  these  advantages?  On  this  ques- 
tion there  is  a  mass  of  accumulated  information  that  may  help  to 
an  answer.  But  the  difficulty  of  making  a  fair  comparison  between 
one  country  and  another  is  exceedingly  great.  National  customs 
differ  widely.  To  give  one  striking  instance.  The  average  Ameri- 
can railway  charges  its  passengers  two  cents  a  mile,  and  admittedly 
makes  no  profit.  The  East  Indian  Railway  charges  four  mills, 
and  makes  a  handsome  profit,  because  the  Bengali  ryot  is  content 
to  travel  under  conditions  of  speed  and  accommodation  and  con- 
venient frequency  of  service  which  imply  reductions  in  operating 
costs  more  than  counterbalancing  the  five-fold  reduction  of  charge. 
And  even  the  four  mills  rate  is  a  much  larger  tax  on  the  income  of 
the  ryot  than  the  two  cents  rate  is  upon  that  of  the  American 
laborer,  etc.  What  shall  be  said?  Would  it  be  reasonable  to  say 
that,  all  things  considered,  the  passenger  fares  in  America  are 
really  lower  than  those  in  Bengal,  in  spite  of  the  fact  that  in  Bengal 
a  man  can  travel  five  miles  at  the  price  of  one  mile  in  the  States? 
Must  it  not  be  acknowledge  that,  where  conditions  are  so  abso- 
lutely different,  one  cannot  really  compare,  but  can  only  contrast? 

If  comparisons  are  to  be  of  value,  they  must  be  made  where 
conditions  are,  if  not  similar — that  we  shall  never  find— at  least  as 
similar  as  may  be.  This  much  seems  clear.  Given  two  countries 
in  which  the  standard  of  living  and  the  purchasing  power  of  money 
are  substantially  the  same,  and  where  the  quality  of  railway  service 
is  substantially  the  same  also,  the  country  in  which  the  rates  charged 
are  the  lower  is  the  country  best  served  by  its  railways.  If  a  coun- 
try, where  the  purchasing  power  of  money  is  low,  obtains  the  same 
quality  of  service  at  a  substantially  lower  rate  than  is  charged  in 
countries  where  the  purchasing  power  of  money  is  high,  where,  in 
other  words,  ordinary  commodities  are  cheap,  then  surely  that 
country  has  an  exceptionally  efficient  railway  service.  Tried  by 
this  test,  how  does  the  United  States  stand? 

It  is  a  matter  of  common  knowledge  that  the  freight  rates  of 
the  United  States  are  out  and  away  lower  than  those  of  any  country 
with  which  comparison  can  reasonably  be  made.  The  figures  of 
the  average  receipts  per  ton-mile  for  Germany  and  France  are 
nearly  double  those  for  America,  1.37  and  1.30  cents  per  ton-mile 

30 


respectively  as  against  0.738  cents.*  And  all  the  other  countries  of 
Western  Europe,  except  Belgium,  are  higher  than  France.  The 
Belgian  rate  is  1.13  cents.  As  we  get  towards  the  east,  rates  fall. 
In  Russia,  the  average  is  0.94,  in  Japan  0.87,  and  finally  in  India,  it 
gets  down  to  0.74  cents,  which  is  practically  the  same  as  the 
American  figure. 

The  reason  why  Oriental  rates  are  low  is  obvious.  Roughly 
half  the  cost  of  railway  operation  is  direct  labor  cost.  And  in 
Japan  a  railway  employee  earns  a  dime,  and  in  India  a  nickel,  where 
in  America  he  earns  a  dollar.  Why  then  are  not  the  rates  still 
lower?  Because  it  needs  many  Orientals  to  do  the  work  of  one 
American,  with  his  efficient  methods  and  his  labor-saving  ap- 
pliances. To  give  one  instance,  railway  embankments  in  India  were 
till  quite  recently,  and  probably  are  still,  constructed  by  gangs  of 
coolies  running  to  and  fro  with  small  baskets  of  earth  upon  their 
heads. 

But  let  us  leave  India  aside.  Once  more  it  is  a  contrast  and  not 
a  comparison.  Confining  ourselves  to  Europe,  we  may  say  broadly 
that  it  costs  as  much  to  move  a  ton  one  mile  in  Europe  as  to  move 
it  two  miles  in  America.  And  when  all  allowances  have  been  made 
for  circumstances  tending  to  make  European  business  more  ex- 
pensive to  handle — short  hauls,  more  diversified  loads,  higher  cost 
of  coal,  and  so  forth — the  100  per  cent,  difference  in  rate  is  so  great, 
that  it  seems  impossible  to  doubt  that  a  large  part  of  it  must  be  due 
to  the  greater  efficiency  of  the  American  railway. 

Prussia  Compared  with  U.  S.  A. 

The  European  country  where  the  traffic  conditions  most  nearly 
approach  those  of  America  is  undoubtedly  Prussia.  In  the  years 
since  1880,  by  which  time  the  railways  had  mostly  been  taken  over 
by  the  State,  the  Prussian  population  has  increased  some  60%,  and 
the  urban  population  in  a  still  higher  ratio.  The  output  of  German, 
mainly  Prussian,  coal  has  grown  from  under  60  to  over  250  mil- 
lion tons,  and  of  steel  from  under  1  to  over  17  million  tons.  And 
Prussia,  is  by  universal  consent,  the  country  where  State  manage- 
ment is  at  its  best. 


^English  figures  are  often  given  in  international  comparisons,  but  they 
are  pure  guesses.  And  how  far  the  guesses  are  wide  of  the  actual  facts,  no 
man  can  say.  For  English  railways,  with  one  exception,  do  not  publish, 
or  even  compile,  ton-mile  and  passenger-mile  statistics.  One  company, 
the  North  Eastern,  does  compile  these  figures,  and  used  to  publish  them, 
but  has  ceased  to  do  so  in  recent  years.  Even  if  the  recent  North  Eastern 
figures  were  available,  it  would  be  quite  impossible  to  say  how  far  they  are 
typical  of  the  English  railways  as  a  whole.  The  present  writer's  guess  is 
that  they  are  not  typical,  because,  for  one  reason,  the  preponderating  traffic, 
which  is  in  coal,  is  carried  for  unusually  short  distances,  and  therefore  at 
unusually  high  rates. 

31 


Let  us  take  the  claim  of  a  panegyrist  of  the  Prussian  system,  and 
see  how  it  compares  with  American  achievement.  In  a  paper  read 
at  the  Royal  Economic  Society  Congress  in  London  in  1911.*  Pro- 
fessor Schumacher  of  Bonn  gave  two  instances  of  the  accomplish- 
ments of  the  Prussian  railways :  "In  the  case  of  goods  sent  in  bulk, 
the  freight  for  long  distances  is  as  low  as  0.8  pfennigs  per  ton- 
kilometre."  This  is  roughly  0.35  cents  per  ton-mile,  which  is  very 
far  from  being  a  startlingly  low  rate  in  America,  seeing  that  the 
average  rate  for  coal  last  year  on  the  Chesapeake  &  Ohio  Railroad 
was  only  0.304  cents,  while  for  all  traffic — high  class  as  well  as  bulk 
freight,  short  distance  as  well  as  long  distance — it  was  only  0.38 
cents  per  ton  per  mile.. 

Professor  Schumacher  says  further  that  "the  receipts  amounted 
in  1880  and  1909  to  4.14  and  3.54  pfennigs  per  ton-kilometre  re- 
spectively (1.65  and  1.41  cents  per  ton-mile).  They  have  therefore 
been  reduced  by  about  15  per  cent."  The  corresponding  receipts 
per  ton-mile  for  the  American  railways  were,  in  1882 — the  first 
year  for  which  adequate  figures  are  available — 1.236  cents;  in  1909 
0.763  cents.  In  other  words,  the  American  ton-mile  rate  started 
at  the  beginning  of  the  period  25  per  cent,  below  the  Prussian  rate  ; 
and  it  fell  in  the  course  of  the  twenty-nine  years,  not  15  per  cent., 
but  nearly  40  per  cent.  At  the  end  of  the  period,  the  American  rate 
was  not  much  more  than  half  the  Prussian  rate — 0.763  cents  com- 
pared with  1.41.  There  are  many  elements,  doubtless,  responsible 
for  so  striking  a  difference.  But,  when  all  have  been  taken  into 
account,  a  railway  expert  is  bound  to  come  to  the  conclusion  that 
the  main  element  is  relative  operating  efficiency.  To  discuss  this 
subject  here  at  length  is  impossible.  But  one  point  may  be  taken. 
The  incomparable  cheapness  of  American  carriage  is  primarily  due 
to  the  employment  of  the  largest  possible  units  of  car-load  and 
train  load.  Less  than  thirty  years  ago,  8-ton  coal  cars  could  still 
be  seen  in  Jersey  City.  Since  then,  the  size  of  car  has  been  increased 
to  30  tons,  50  tons,  and  now  70  tons  and  90  tons.  Prussia,  not  being 
hampered  like  England  with  high  platforms  and  innumerable  tun- 
nels limiting  the  loading  gauge,  might  well  have  followed  the  Ameri- 
can example.  But  she  has  clung  to  the  old  4-wheeled  cars  with  an 
average  capacity  of  less  than  15  tons  ;  with  the  result  that,  while  the 
average  American  freight  train  has  reached  500  tons,  the  Prussian 
load  is  246  tons,  or  less  than  half  the  American.1  And,  to  re- 
dress the  balance,  the  American  freight  rate  per  ton-mile  is  half  the 

*The  State  in  Relation  to  Railways,  London,  P.  S.  King,  1912. 

1When  the  American  rate  was  1.236  cents  per  ton-mile,  the  train  load 
was  only  129  tons.  It  is  mainly  the  increase  of  the  train  load  to  500  tons 
and  the  consequent  increase  of  the  train-mile  revenue  to  $3.74,  spite  of  a 
40%  drop  in  the  average  ton-mile  rate,  which  has  made  the  modern  American 
rate  of  .738  cents  possible. 

32 


Prussian,  spite  of  the  fact  that  Prussian  railways  pay  practically  no 
taxes  and  that  American  wages  are  double  those  in  Prussia. 

It  may  be  added  that  the  progressive  reduction  of  rates,  of  which 
Professor  Schumacher  speaks,  had  in  fact  ceased  long  before  1909. 
M.  Colson  writes:  "The  Germans  no  longer  make  any  serious 
freight  rate  reductions.  Within  the  last  ten  years,  the  average  rate 
per  ton-kilometre  has  oscillated  between  4.41  centimes  and  4.36  cen- 
times per  ton-kilometre  (1.37  cents  and  1.34  cents  per  ton-mile) 
according  to  the  composition  of  the  traffic.  During  the  same  period, 
the  average  rate  in  France  has  fallen  from  4.71  centimes  in  1901-2 
to  4.19  in  1911,  (1.45  to  1.3  cents  per  ton-mile)  a  reduction  of  11  per 
cent."  On  the  other  hand,  he  adds,  that  "between  1905  and  1911,  the 
average  passenger  fare  fell  in  Germany  from  3.22  to  2.94  centimes 
per  kilometre  (.99  to  .902  cents  per  mile,  nearly  9  per  cent.),  while 
in  France  it  only  fell  from  3.69  to  3.50  centimes"  (1.13  to  1.08  cents 
per  mile,  just  5  per  cent.)2  It  may  be  added  further  that  even  the 
15  per  cent,  reduction,  of  which  Professor  Schumacher  speaks  with 
pride,  is  largely  due,  not  to  reduction  in  individual  rates,  but  to  the 
increased  proportion  of  the  whole  traffic  which  consists  of  coal, 
iron  ore,  and  other  raw  materials  taking  the  lowest  rates. 

Prussia  Compared  with  France 

But  it  is  perhaps  scarcely  fair  to  compare  Prussian  railways  with 
those  of  America.  After  the  Battle  of  Salamis,  Themistocles  re- 
ceived by  the  vote  of  the  Greek  generals  the  first  prize  for  valor. 
For  though  each  general  considered  that  he  himself  was  entitled  to 
the  first  place,  they  all  agreed  that  Themistocles  was  entitled  to  the 
second.  Similarly,  though  the  railwaymen  of  other  countries  might 
each  claim  the  first  place  in  efficiency  for  themselves,  there  can  be 
little  doubt  that  they  would  all  agree  in  giving  their  second  vote  to 
the  United  States.  The  railway  service  in  America  has  attracted 
perhaps  the  best  brains  of  the  country.  In  Germany,  military, 
naval  and  diplomatic  careers,  and  even  professorships  in  the  Uni- 
versities, offer  higher  inducements  to  their  brightest  men. 

German  railways,  however,  may  be  fairly  compared  with  those 
of  France,  where  Government  service  has  a  similar  prestige.  M. 
Colson  has  on  numerous  occasions  compared  the  efficiency  of  opera- 
tion of  the  two  countries.  The  comparison  which  he  makes  is  in 
outline  as  follows: 


2Revue  Politique  et  Parlementaire,  May,  1913. 

*See  Colson's  articles  in  the  "Revue  Politique  et  Parlementaire"  for 
May,  1902;  May,  1904;  May,  1906;  May,  1907;  November,  1910;  December. 
1911;  May,  1913,  and  May,  1914.  See  also  "Cours  d'Economie  politique" 
Livre  VI  1907.  The  outline  in  the  text  is  mainly  taken  from  "Cours 
d'Economie  Politique." 

33 


Prussia  occupies  a  position  naturally  more  advantageous  than 
France  from  the  point  of  view  of  economical  operation.  The  coun- 
try is  almost  wholly  flat,  while  most  of  France  is  hilly,  and  a  con- 
siderable part  mountainous.  Coal  is  immensely  cheaper,  and  also 
steel.  The  traffic  density  is  much  higher,  the  number  of  units  of 
traffic  (ton-kilometres  and  passenger-kilometres)  carried  being  more 
than  double  in  Prussia,  though  the  length  of  line  is  only  29,000  as 
against  25,000  miles.  On  the  other  hand  it  is  to  be  admitted  that 
the  French  length  of  haul  is  somewhat  greater.  The  charges  made 
for  carriage  are  substantially  identical  in  the  two  countries.  There 
is  a  difference  of  about  three  per  cent,  in  the  average  ton-mile  rate 
in  favor  of  Prussia.  But  this  difference  is  very  much  more  than 
explained  by  the  much  larger  proportion  in  Prussia  of  coal,  iron-ore 
and  other  bulk  freight  carried  at  the  lowest  rates.  Taken  separately, 
the  average  rate  per  kilometer  for  coal  in  1905  was  3.10  centimes 
(.96  cents  per  ton-mile)  in  France,  and  3.16  centimes  (.98  cents  per 
ton-mile)  in  Prussia.  For  all  other  freight,  it  was  5.07  (1.57  cents 
per  ton-mile)  in  Prussia  against  5.00  (1.55  cents  per  ton-mile)  in 
France.  But  when  the  two  came  to  be  added  together,  the 
total  result  was  4.30  centimes,  (1.34  cents  per  ton-mile)  in 
Prussia  and  4.52  (1.40  cents  per  ton-mile)  in  France.  In  the  case 
of  passenger  traffic,  M.  Colson  admits  that  the  average  rate  is 
12  per  cent,  higher  in  France.  But  he  points  out  that  30  per  cent, 
of  the  Prussian  passengers  are  carried  in  fourth-class  carriages,  in 
which  to  a  very  large  extent  there  are  no  seats,  a  class  of  accom- 
modation to  which  France  offers  no  parallel.  Further,  a  much 
larger  proportion  of  the  freight  traffic  in  Prussia  is  in  straight  car- 
loads, loaded  and  unloaded  by  the  shipper,  services  which  are  usually 
included  in  the  French  rate.  Wages  in  France  are  at  least  as  high,  if 
not  higher  than  in  Prussia ;  and  in  addition  to  the  wages,  the  French 
railways  incur  charges  amounting  to  quite  a  high  percentage  of  the 
total  wage  bill  for  pensions,  superannuations  and  other  benevolent 
purposes.  Again,  the  French  railways  are  subject  to  serious  respon- 
sibilities from  which  the  Prussian  State  Railways  are  free.  In  both 
countries  there  is  a  legal  limit  of  time  fixed  within  which  traffic  must 
be  delivered  at  destination,  and  if  this  limit  is  exceeded  the  freighter  is 
entitled  to  damages.  But  in  France  the  period  begins  to  run  from 
the  time  the  freight  is  brought  to  the  railroad ;  in  Prussia,  only  from 
the  time  when  the  railroad  gives  notice  that  a  freight  car  is  ready 
to  receive  it.  The  French  railways  are  required  to  pay  full  com- 
pensation for  loss,  damage  or  delay.  In  Prussia,  liability  is  legally 
limited  to  a  fixed,  and  usuaally  quite  small  sum,  normally  a  certain 

34 


proportion  of  the  freight  charge  paid.1  Another  fact  which  should 
tend  to  produce  a  lower  operating  ratio  in  Prussia  than  in  France 
is  that  a  larger  proportion  of  the  French  traffic  is  passengers ;  and 
passenger  traffic,  under  French  and  German  conditions,  is  unques- 
tionably less  profitable  than  freight  traffic.  "From  the  combined 
effect  of  all  these  causes,"  writes  M.  Colson,  "if  the  opefating  ratio 
in  France  were  10  or  15  per  cent,  higher  than  in  Germany,  it  would 
not  imply  inferior  operating  ability.  But  in  fact  the  difference  is 
in  the  opposite  direction.  If  our  companies  worked  as  expensively 
as  the  German  State  Railways,  they  would  spend  from  twenty  to 
forty  million  dollars  more  than  they  do  per  annum."  The  operating 
ratios  as  given  by  M.  Colson  for  different  dates  are  as  follows : 

1900    1910    1911     1912    1913 

France 54        60        62.5     63        63 

Prussia    62        67        65        66        66 

The  difference  has  lessened  in  recent  years.  But  the  explanation  is 
that  since  1909,  the  Western  railway  of  France  has  been  handed  over 
to  the  State ;  and  the  operating  ratio  of  this  system  has  gone  up  to 
such  an  extent  (it  was  87  per  cent,  in  1911  according  to  the  official 
figures  used  by  Mr.  Colson— though  M.  Le  Roy  Beaulieu8  makes  it 
to  have  really  been  as  high  as  90  per  cent.— and  89  per  cent,  in  1913, 
as  compared  with  an  average  of  60  per  cent,  for  the  five  years  before 
the  purchase)  as  seriously  to  affect  the  French  average.  Thus,  while 
the  operating  ratio  for  all  the  French  railways  in  1911  was  62.5  per 
cent,  as  given  above,  for  the  private  lines  only  it  was  58.5  per  cent. 
So  it  appears  that  the  divergence  of  7  or  8  per  cent,  in  the  operating 
ratio  between  the  French  companies  and  the  Prussian  State  railways 
remains  substantially  the  same  over  a  series  of  years.  And  the  fact 
that  the  expenditure  on  the  Western  of  France  has,  since  that  sys- 
tem was  taken  over  by  the  State,  increased  out  of  all  proportion 
either  to  its  own  previous  expenditure,  or  to  the  expenditure  still 
found  sufficient  on  the  remaining  private  railways,  clearly  affords 
no  argument  for  the  economical  management  of  the  Prussian  State. 

New  South  Wales  Compared  with  Texas 

Let  us  attempt  another  comparison.  To  compare  Australia  as  a 
whole  with  the  United  States  as  a  whole,  though  the  two  areas  are 
very  nearly  the  same,  would  be  unreasonable.  Australia,  with  only 

*A  full  account  of  the  stern  restrictions  with  which  the  liability  of  the 
German  State  Railways  is  fenced  round  will  be  found  in  "German  v.  British 
Railways,"  by  Edwin  A.  Pratt  (P.  S.  King  &  Co.,  London,  1907).  Mr.  Pratt 
quotes  a  statement  made  to  him  by  a  large  German  trader  that,  sooner 
than  send  in  claims  which  they  would  have  no  chance  of  getting  paid, 
"they  had  better  save  the  postage  stamp." 

*The  State  in  Relation  to  Railways,  p.  55. 

35 


five  million  inhabitants,  has  nothing  comparable  with  the  enormous 
traffic  of  the  North  Atlantic  States.  But  a  comparison  between  New 
South  Wales,  the  oldest  Australian  Colony,  and  Texas  seems  to  be 
fair,  and  is  not  without  interest. 

New  South  Wales,  with  310,000  square  miles,  is  not  dissimilar  in 
area  from  Texas  with  an  area  of  262,000  sqare  miles.  But  Texas 
had  a  population  at  the  census  of  1910  of  3,900,000,  while  the  popula- 
tion of  New  South  Wales  was  only  1,650,000.  The  New  South 
Wales  population  is  not  only  smaller,  but  is  increasing  less  rapidly. 
In  the  ten  years  1901-1911,  it  only  increased  from  1,359,000  to  1,648,- 
000,  or  21  per  cent.  In  the  same  period  the  population  of  Texas  in- 
creased from  3,049,000  to  3,897,000,  or  nearly  28  per  cent.  But  while 
Texas  with  double  the  population  had,  at  the  census  of  1910,  no 
town  of  over  100,000  people,  no  less  than  621,000  of  the  inhabitants 
of  New  South  Wales  lived  in  Sydney  and  its  suburbs.  It  is  safe 
to  say  that  a  chief  cause — if  not  the  chief  cause — of  the  smaller  popu- 
lation of  New  South  Wales,  and  its  concentration  in  and  around 
the  capital,  as  compared  with  the  larger  and  better  distributed  popu- 
lation of  Texas,  is  the  difference  in  the  railway  development  and 
service  of  the  two  countries. 

Texas  has  over  15,000  miles  of  railway  against  4,000  in  New  South 
Wales,  giving  a  mile  of  line  for  every  259  inhabitants  of  Texas,  as 
against  a  mile  of  line  for  every  412  inhabitants  in  New  South  Wales. 
Certainly  the  New  South  Wales  Government  does  not  seem  to  show 
to  great  advantage  as  compared  with  private  companies,  so  far  as 
enterprise  in  opening  up  new  country  is  concerned. 

Now  let  us  see  whether  the  railways  that  have  been  constructed 
rin  New  South  Wales  serve  the  public  better  than  the  railways  of 
Texas.  The  average  rate  in  Texas  per  ton-mile  in  1915  was  .995 
cents,  and  the  average  rate  in  New  South  Wales  for  the  same  year, 
inclusive  of  terminals,  which  the  official  statistics  leave  out  in  their 
ton-mile  calculations,  was  2.20  cents,  or  more  than  double.  It  is  true 
that  the  average  fare  per  passenger  mile  in  New  South  Wales,  where 
it  is  pulled  down  by  the  enormous  commuters'  traffic  of  Sydney, 
was  only  1.15  cents,  as  against  2.42  cents  in  Texas,  or  less  than 
half.  But  no  one  will  suppose  that  low  rates  for  passengers  are  as 
important  to  the  prosperity  of  a  country  as  low  rates  for  goods. 
And,  besides,  whereas  the  average  passenger  journey  in  Texas  was 
53  miles,  and  in  New  South  Wales  only  14  miles,  the  average  dis- 
tance a  ton  of  freight  was  hauled  was  135  miles  in  Texas,  as  against 
79  in  New  South  Wales. 

Comparing  the  work  done  for  the  public  in  the  two  States,  we 
find  that  in  Texas  7,360,000,000  tons  were  hauled  one  mile ;  in  New 
South  Wales  only  917,000,000.  Passengers  hauled  one  mile  were, 

36 


on  the  other  hand,  1,231,000,000  in  New  South  Wales  against  1,007,- 
000,000  in  Texas.  Putting  the  two  together  we  have  8,367,000,000 
traffic  units  (one  ton  or  one  passenger  carried  one  mile)  in  the  year 
in  Texas  against  2,148,000,000  in  New  South  Wales.  In  other  words, 
the  private  railways  of  Texas  performed  for  the  Texan  public  nearly 
four  times  as  much  work  as  the  New  South  Wales  State  railways 
performed  for  the  public  of  that  State. 

The  traffic  density  is  very  mch  alike  in  the  two  cases :  515,000 
traffic  units  per  mile  of  line  per  annum  in  Texas;  530,000  in  New 
South  Wales.  The  Texan  railways  have  a  considerable  advantage 
in  better  gradients  and  longer  hauls,  and  for  both  these  reasons 
lower  rates  in  Texas  might  naturally  be  expected.  But  the  differ- 
ence is  far  too  great  to  be  explained  on  these  grounds.  Per  unit  of 
traffic  carried  the  public  were  charged  in  Texas  1.17  cents,  in  New 
South  Wales  1.60  cents,  nearly  half  as  much  again. 

As  the  result  of  their  high  rates  the  New  South  Wales  railways 
earned  $9,140  per  mile  of  road  per  annmu.  As  the  result  of  their 
low  rates  the  Texan  railways  earned  only  $6,592.  But,  thanks  to 
superior  efficiency  of  management,  the  Texan  railways  spent  much 
less  to  carry  each  unit  of  traffic.  Per  unit  the  Texan  railways  spent 
0.935  cents;  the  New  South  Wales  railways  spent  1.115  cents.  In 
other  words,  had  the  Texan  railways  operated  as  expensively  as  the 
New  South  Wales  railways,  they  would  have  had  practically  no 
net  revenue  at  all. 

One  point  more :  the  Texan  railways  have  had  to  raise  their  cap- 
ital as  best  they  could  and  could  do  very  well  with  more  of  it.  Were 
they  in  a  position  to  raise  new  capital  on  favorable  terms,  they  could 
doubtless  improve  their  operating  efficiency  still  further.  The  New*  ..* 
South  WTales  railways  can  raise,  and  always  have  been  able  to  raise, 
on  the  government  credit  all  the  money  they  need  at  the  lowest  rate 
of  interest.  Will  any  one  deny  that,  even  handicapped  as  they  are, 
the  private  railways  of  Texas  are  giving  to  the  people  of  Texas  a 
more  ample,  a  more  efficient,  and  a  cheaper  service  than  the  govern- 
ment of  New  South  Wales  gives  to  its  citizens  ? 

Private  Railways  Lead  in  Inventions  and  Improvements 

To  turn  from  specific  comparison  to  more  general  considerations. 
The  fact  has  already  been  mentioned  that,  while  the  American  com- 
panies have  boldly  revolutionized  their  machinery  and  methods 
of  carriage,  the  Prussian  State  has  clung  to  old  machinery  and  old 
methods.  The  huge  engines  and  freight  cars  used  in  America  today 
could  never  have  run  on  the  rails  or  crossed  the  bridges  as  they 
existed  in  1880.  So  the  American  companies  have  laid  ever  heavier 

37 


and  heavier  rails,  and  have  rebuilt  their  bridges,  often  more  than 
once.  The  Prussian  State  is  content  to  put  forward,  as  a  sufficient 
reason  for  adhering  to  the  old  methods,  the  fact  that  track  and 
bridges  are  not  strong  enough  to  carry  the  heavier  equipment. 

This  example  is  typical.    In  all  the  history  of  railway  develop- 
ment, it  has  been  the  private  companies  that  have  led  the  way ;  the 
State  systems  that  have  brought  up  the  rear.    It  would  be  difficult 
to  point  to  a  single  important  invention  or  improvement,  the  intro- 
duction of  which  the  world  owes  to  a  State  railway.*     England 
shares  with  America  the  credit  of  having  invented  the  locomotive. 
England  first  rolled  steel  rails,  but  America  was  not  long  behind. 
England  first  introduced  the  block  system  of  signaling;  while  to 
America  is  mainly  due  the  later  development  of  automatic  appli- 
ances.    There  are  two  types  of  power  brakes  on  the  world's  rail- 
ways.    The  Westinghouse  brake  was  invented  in  America,  the 
vacuum   brake   in    England.     The   automatic    coupler   is    wholly 
American.     So  are  the  sleeping  car  and  the  dining  car.     Shunting 
by  gravity,  which  accounts  for  a  saving  of  millions  of  dollars  a 
year,  was  invented  in  England,  but  has  been  mainly  developed  in 
America.    Brunei,  on  the  Great  Western  of  England,  first  taught  the 
world  what  express  trains  meant.  And  forty  years  later,  the  English 
companies  in  the  historic  "Race  to  Edinburg"  in  1888  gave  a  new 
interpretation  of  the  term.     America  promptly  replied  with  the 
"Empire  State  Express,"  and  bettered  the  instruction  with   the 
"Atlantic  City  Flyers."    The  French  companies,  too,  took  up  the 
challenge,  and  put  on  trains  from  Paris  to  Calais,  and  to  the  Belgian, 
German  and  Spanish  frontiers,  that  could  hold  their  own  with  any- 
thing that  England  and  America  had  to  show.  And  meanwhile  the 
International  Expresses  of  Prussia  and  Belgium  jogged  contentedly 
behind.  It  is  true  that  in  these  two  countries  the  track  was  not  fit  for 
high  speeds.    Nor  was  it  at  the  outset  in  France  or  America.    But  it 
was  possible  to  make  it  so — at  least  where  it  was  in  the  hands  of  a 
private  company.  Take  the  latest  problem  of  all,  the  electrification 
of  main  lines  with  dense  traffic.  Electric  working  is  constantly  push- 
ing out  from  New  York  and  Philadelphia,  from  London  and  Liver- 
pool and  Manchester.    And,  meanwhile,  the  Prussian  Government 
has  carried  out  some  interesting  and  exhaustive  experiments  on  a 
special  track  at  Zossen. 

Railroading  is  a  progressive  science.  New  ideas  lead  to  new  in- 
ventions; imply  new  plant,  new  methods.  And  this  means  the 
spending  of  much  new  capital  to  be  recouped  by  larger  economies 


*Possibly  the  Schmitt  locomotive  superheater  might  be  claimed  by  the 
German  railways  as  an  important  improvement  of  which  the  credit  is  theirs. 

38 


later  o 


.ter  on.  The  State  official  mistrusts  ideas,  pours  cold  water  on  new 
inventions,  grudges  new  expenditure.  No  one  questions  the  ability 
of  the  German  people.  German  manufacturers,  German  merchants, 
German  bankers  have  taught  the  business  world  a  good  deal  in 
recent  years.  German  railwaymen  have  written  many  books,  some 
of  them  valuable;  but  in  practical  operation  they  have  taught  the 
railway  world  nothing.  Why?  Is  it  because  they  are  State  Officials? 


English  Government  Management  of  Telegraphs 
and  Telephones 


Certainly  English  experience  of  undertakings  in  the  hands  of 
public  authorities  would  lead  us  to  suppose  so.  English  experience 
confirms  the  conclusion  of  the  Italian  Commission  of  1881  that  "the 
State  is  more  likely  to  tax  industry  than  to  foster  it."  Fifty  years 
ago,  the  English  Government  acquired  the  telegraphs.  Three  official 
estimates  of  the  cost  of  acquisition  were  put  forward.  The  first  was 
for  $11,679,600;  the  second  was  for  $29,199,000,  and  the  third  was 
for  $32,848,875.  According  to  the  official  figures,  the  capital  account 
was  finally  closed  with  a  total  expenditure  of  $52,887,289.  On  the 
basis  of  the  $29,199,000  capital  cost,  the  Post  Office  estimated  to 
obtain  an  annual  net  revenue  of  $987,900.  The  fact  had  been  that, 
on  the  average  of  the  last  ten  years,  there  has  been  a  loss  of  more 
than  $4,866,500  per  annum. 

The  Act  authorizing  the  Government  to  acquire  the  undertak- 
ings of  the  Telegraph  Companies  was  passed  in  1868.  In  the  fol- 
lowing year  a  further  Act  was  passed  giving  the  Post  Office  the 
monopoly  of  the  business.  When  telephones  were  invented  the 
Post  Office  did  nothing  to  encourage  their  development.  It  merely 
looked  on  while  private  companies  undertook  the  work.  As  soon  as 
it  became  evident  that  the  thing  was  serious,  the  Post  Office  took 
fright,  and  started  out  to  defend  its  monopoly.  After  long  litigation, 
the  Supreme  Court  of  Appeal  decided  that  a  Statute  passed  many 
years  before  telephones  were  born,  giving  the  Government  the 
monopoly  of  telegraphs,  extended  to  all  forms  of  electric  communi- 
cation. And  thereupon,  the  Post  Office  proceeded  to  handicap  its 
rival  by  imposing  a  license  fee  of  10  per  cent,  on  all  telephone  gross 
receipts.  Not  content  with  this,  it  took  all  the  trunk  lines  into  its 
own  hands,  leaving  the  company  only  the  local  exchanges.  It 
reserved  certain  areas  for  itself,  characteristically  giving  in  these 
areas,  except  in  quite  populous  places,  telephone  service  only  from 
8  a.  m.  to  8  p.  m.  on  week  days ;  whereas  all  the  company's  offices 
were  open  continuously.  And  last,  not  least,  it  only  granted  short 
term  licenses,  so  that  the  company  had  difficulty  in  raising  necessary 

39 


new  capital.  Spite  of  all  these  difficulties,  the  company  managed  to 
pay  a  fair  dividend,  till  finally  in  1911  the  licenses  expired,  and  the 
Post  Office  took  over  the  whole  business.  It  has  already  succeeded 
in  converting  a  surplus  into  a  substantial  deficit.  And  one  is  keep- 
ing well  within  the  facts  to  say  that,  so  far,  the  service  to  the  public 
has  not  improved. 

The  English  Post  Office  has  made  yet  another,  though  less  im- 
portant, effort  in  the  direction  of  "taxing  industry  rather  than  foster- 
ing it."  It  had  been  urged  for  many  years  to  establish  a  special 
delivery  service  for  letters,  and  had  steadily  refused,  alleging  that 
there  was  no  substantial  public  demand.  Some  five  and  twenty 
years  ago,  an  enterprising  company  started  in  London  a  District 
Messenger  service.  It  was  found  to  meet  a  real  need,  and  seemed 
to  be  likely  to  establish  itself  successfully.  Thereupon  the  Post 
Office,  which  has  a  statutory  monopoly  of  the  carriage  of  letters, 
promptly  took  action.  It  began  by  hampering  its  more  nimble 
rival  with  a  heavy  license  duty,  and  it  went  on  to  establish  a  service 
of  its  own,  which,  though  less  convenient  and  flexible,  was  con- 
siderably cheaper.  Naturally  the  company  was  hard  hit,  and  it  has 
only  maintained  its  existence  by  undertaking  other  work,  such  as 
that  of  a  theatrical  ticket  agency.  The  net  result  is  that  London 
has  two  inferior  services  instead  of  one  good  one.  Whether  the 
Post  Office  makes  a  profit  or  a  loss,  the  published  accounts  do 
not  show. 

Municipal  Electricity  in  England 

England  is  admittedly  behind  her  two  great  commercial  rivals, 
the  United  States  and  Germany,  in  the  application  of  electricity  to 
commercial  purposes.  And  this  we  owe  to  the  fact  that  the  munici- 
pal authorities  have  faithfully  followed  the  lead  of  the  Post  Office. 
Gas  lighting  was  introduced  all  over  the  country  by  private  com- 
panies; but  the  gas  undertakings  in  most  of  the  important  cities 
have  long  ago  passed  into  the  hands  of  the  municipalities.  And  as 
a  rule,  as  private  enterprise  had  piloted  them  safely  through  their 
early  stages  of  development,  they  have  been  the  source  of  con- 
siderable profits  to  the  City  Exchequer.  About  thirty  years  ago, 
when  electric  lighting  first  became  commercially  possible,  Parlia- 
ment, by  an  Act  passed  in  1882,  and  an  amending  Act  passed  in 
1888,  laid  down  a  general  code  regulating  the  subject.  Broadly  to 
this  effect:  Either  a  company  or  a  local  authority  may  apply  to 
the  competent  department  of  the  Government,  the  Board  of  Trade, 
for  an  Order — or,  in  American  phrase,  Charter.  If  both  a  company 
and  a  local  authority  apply  for  an  Order  relating  to  the  same  area, 
it  is  the  application  of  the  local  authority  only  that  is  granted,  unless 

40 


under  exceptional  circumstances.  If  an  Order  is  granted  to  a  com- 
pany, it  expires  after  42  years.  The  original  period  was  only  21 
years;  but  it  was  found  that  on  this  condition  no  company  could 
raise  capital.  If  an  Order  is  granted  to  a  local  authority,  it  is  in 
perpetuity.  The  Order  gives  to  the  grantees,  unless  and  until  a  new 
Order  admits  a  competitor,  which  in  practice  never  now  happens,  a 
monopoly  of  supply  within  the  scheduled  area.  The  Board  of  Trade 
has  wide  discretion  to  revoke  the  Order,  where  the  grantees  have 
not  substantially  carried  out  the  works  projected,  or  where  they 
fail  to  furnish  a  satisfactory  supply.  The  upshot  of  these  condi- 
tions has  been  this.  At  the  outset,  a  large  number  of  local  author- 
ities applied  for  Orders,  apparently  merely  with  the  object  of  keep- 
ing out  private  enterprise,  for  they  took  no  steps  whatever  after 
they  had  obtained  their  Orders  to  put  them  into  effect.  After 
considerable  delay,  the  bulk  of  these  blocking  Orders  were  revoked, 
but  private  enterprise  had  meanwhile  been  effectively  warned  off. 
When  at  length,  it  became  evident  that  public  electric  supplies  must 
come,  in  some  areas  companies  were  grudgingly  admitted ;  in  other 
areas,  the  local  authority  undertook  the  work  itself ;  whichever  hap- 
pened, it  was  a  very  frequent  complaint  that  the  local  authority  was 
more  concerned  for  the  protection  of  the  existing  revenue  from  its 
gas  undertaking,  than  for  the  development  of  the  new  force,  which 
science  was  ready  to  put  at  the  disposal  of  the  public. 

A  later  phase  of  the  situation  came  into  view  when  the  suitability 
of  electricity,  not  merely  for  lighting,  but  for  power  purposes,  be- 
came manifest.  A  municipality  could  not  legally  supply  beyond  its 
own  restricted  area.  And  industrial  districts  in  their  development 
pay  no  attention  to  city  boundaries.  Numerous  companies,  influ- 
entially  supported,  brought  forward  schemes  of  wholesale  genera- 
tion with  modern  plant  for  large  districts.  A  good  many  Orders 
were  granted.  Only  one  of  the  schemes  has  been  even  a  moderate 
success.  And  a  chief  reason  has  undoubtedly  been  that  the  munici- 
pal authorities  of  the  important  cities  geographically  included  in 
the  various  districts  fought  successfully  to  deprive  the  power  com- 
panies of  the  right  to  supply  within  their  cities,  alleging  that  it 
was  not  in  the  public  interest  that  private  companies  should,  for 
selfish  ends,  compete  with  undertakings  carried  on  at  the  public 
expense  and  for  the  public  benefit.  And  so  England  is  still  mainly 
given  over  to  small  separate  undertakings,  which  cannot,  in  the 
nature  of  things,  give  a  cheap  supply,  and  which,  in  many  cases, 
are  unable  to  give  a  supply  on  such  a  scale  as  would  be  necessary, 
if  a  large  manufacturer  desired  to  substitute  electricity  for  steam  as 
the  motive  power  in  his  factory. 

41 


Public  Officials  and  Commercial  Managers 

Other  instances  might  be  cited  from  English  experience.  But 
the  above  are  sufficient  to  show  that  in  England  at  least  the  official 
is  not  eager  to  foster  industry ;  that  he  will  fight  to  mainain  the  ac- 
quired situation  of  his  public  undertaking,  however  much  it  may  be 
in  the  interest  of  the  public  itself  that  the  situation  should  be  mod- 
ified. It  might  have  been  expected,  d,  priori,  that  public  officials, 
having  only  the  public  interest  to  serve,  and  having  no  shareholders 
to  whom  increase  or  decrease  of  profits  means  increase  or  decrease 
of  dividends,  would  be  more  ready  to  take  reasonable  risks,  more 
complaisant,  less  meticulous  to  protect  their  undertakings  to  the 
utmost,  than  the  managers  of  commercial  companies.  But  experi- 
ence shows  that  the  reverse  is  the  case.  The  careful  Prussian  regu- 
lations limiting,  and  in  practice  usually  excluding  altogether,  the 
liability  of  the  railway  administration  for  delay,  loss  or  damage  of 
freight,  have  already  been  mentioned.  It  may  be  added  that  the 
Prussian  railways  have  an  elaborate  system  of  "delivery  insurance" 
under  which,  by  making  an  extra  payment,  the  shipper,  if  the  ample 
legal  limit  of  time  for  transportation  is  exceeded,  can  recover  some 
extra  compensation  from  the  railway.  It  is  difficult  to  imagine  what 
would  be  the  attitude  of  a  shipper  in  England  or  the  United  States, 
if  he  was  asked  to  insure  at  his  own  expense  the  fulfillment  by  the 
railway  company  of  its  common  law  duty  to  him  to  deliver  his 
freight  within  a  reasonable  time. 

In  every  country  where  railways  are  highly  developed,  rates  for 
freight  consigned  in  full  carloads  are  lower  than  for  freight  con- 
signed in  retail  quantities.  And  the  practice  is  abundantly  justified, 
commercially  on  the  ground  that  the  wholesale  price  is  always  less 
than  the  retail,  and  technically  on  the  ground  of  the  saving  of  operat- 
ing cost  to  the  railroad.  England,  where  the  public  stil  persists  in 
regarding  a  railway  truck  as  only  a  slightly  modified  carrier's  cart, 
makes  the  least  reduction,  averaging  perhaps  15  to  20  per  cent. 
France  makes  more.  America,  which  usually  concedes  the  reduction 
of  2  classes  in  the  Classification,  makes  more  still.  But  Prussia  goes 
much  further  than  any  other  country.  Freight,  not  classified  as 
entitled  to  exceptional  rates,  and  therefore  carried  at  the  rates  of 
the  normal  tariff,  is  charged  in  he  ratio  of  9  to  4,  according  to 
whether  it  takes  the  10-ton  or  the  package-freight  rate.  And,  as  a 
result  of  this  method  of  charging,  95  per  cent,  of  the  Prussian  traffic 
is  in  carload  lots.  The  system  is  highly  convenient  and  profitable 
to  the  railroad,  for  it  evidently  leads  to  the  more  economical  occupa- 
tion both  of  the  road  and  the  freight  cars.  Whether  it  is  equally  in 
the  public  interest  is  more  than  questionable.  Assume  that  a 

42 


freighter  at  a  way-station  20  miles  west  of  Berlin  wishes  to  send 
2  tons  of  merchandise  to  a  similar  station  10  miles  short  of  Frank- 
fort. He  has  two  courses  open  to  him.  Either  he  can  send  it  direct ; 
if  he  does  he  will  be  charged  4.5  cents  per  ton  per  mile.  Or  he  can 
hand  it  over  to  a  "spediteur"  or  forwarding  agent.  In  that  case 
the  "spediteur"  will  take  it  back  to  Berlin  at  the  L.  C.  L.  rate,  send 
it  thence  to  Frankfort  as  part  of  a  10-ton  consignment,  and  thence 
reconsign  it  back  to  its  destination  as  package  freight.  The  con- 
signor will  gain  something  in  money — the  smallest  proportion, 
namely,  of  the  difference  between  the  package  freight  rate  and  the 
sum  of  the  three  rates  paid  by  the  "spediteur"  which  the  "spediteur" 
thinks  will  induce  the  consignor  to  continue  to  deal  with  him  in 
future.  But  he  will  hardly  gain  in  promptitude  of  delivery.  Can  it 
be  doubted  that  in  this  instance  it  is  railroad  interest  rather  than 
public  convenience  which  is  primarily  regarded?* 

Here  is  a  comparison  on  all  fours  of  English  and  Prussian  meth- 
ods. In  England  any  respectable  shipper,  and  indeed  any  private 
individual,  can  open  what  is  known  as  a  "ledger  account"  with  the 
railway  company.  He  then  obtains  practically  two  months'  credit 
for  the  carriage  of  his  shipments.  The  account  for  each  months  is 
rendered  by  the  company  to  the  shipper  at  the  end  of  the  month, 
and  then  the  shipper  has  another  month  in  which  to  pay.  Often- 
times the  month  is  exceeded.  If  the  shipper  disputes  any  item,  on 
whatever  ground  seems  to  him  sufficient,  he  strikes  it  out  and  only 
pays  the  balance.  And  the  railway  submits  as  of  course  to  the 
charge  remaining  in  suspense  till  the  matter  is  settled.  In  Prussia,  a 
shipper  can  open  a  monthly  account,  provided  his  average  freight 
payments  amount  to  not  less  than  $75  a  month,  and  provided  he 
deposits  with  the  railway  administration  cash  or  securities  equal  in 
value  to  one  and  one-half  times  his  average  monthly  account.  If 
in  the  course  of  the  month  his  shipments  reach  the  value  of  the  se- 
curities deposited,  he  must  either  increase  his  deposit,  or  pay  prompt 
cash  for  the  rest  of  the  month.  That  this  difference  of  method  is  not 
due  to  the  fact  that  the  railways  are,  in  the  one  case,  in  England, 
and  in  the  other,  Prussia,  but  rather  to  the  fact  that  in  the  one  case, 
they  are  in  the  hands  of  private  companies,  and  in  the  other  in 
those  of  State  Officials,  may  be  concluded  from  the  attitude  of  the 
State  in  England  in  the  case  of  those  commercial  undertakings  which 
it  does  manage.  In  England,  the  maintenance  of  a  deposit  cover- 
ing prospective  telephone  calls— or  rather  two  deposits,  one  for 


*It  should  be  further  noted  that  these  "spediteurs' "  charges,  which  are 
not  inconsiderable  in  the  aggregate,  should  be  added  to  the  railway  freight 
rates  if  we  wish  to  estimate  the  total  rates  paid  by  the  Prussian  shipper 
as  compared  with  his  competitors  in  other  countries. 

43 


local  and  one  for  long  distance  calls — is  as  rigidly  insisted  on  as  is 
the  corresponding  deposit  by  the  Prussian  State  Railways ;  and  a 
householder,  who  neglects  to  replenish  his  deposit  when  exhausted, 
even  though  it  may  be  only  a  few  shillings  overdrawn,  finds  his  tele- 
phone service  cut  off  without  more  ado.  As  for  liability  for  loss  and 
damage,  the  regulations  are  sufficiently  frank  and  drastic.  "The 
Post  Master  General  is  not  liable  for  any  loss  or  damage  which  may 
be  caused  by  the  failure  of  any  telephonic  communication,  whether 
such  failure  is,  or  is  not,  due  to  the  act  or  default  of  any  officer  of 
the  Post  Office."  And  the  regulations  in  respect  of  the  telegraph 
service  are  to  the  same  effect.  Can  such  regulations  be  justified  in 
the  public  interest?  Can  it  be  right  that  the  public  in  its  corporate 
capacity  should  refuse  justice  to  its  own  individual  members?  Can 
these  regulations  be  explained,  except  on  the  theory  that  they  are 
imposed  by  the  State  Official  for  his  own  convenience,  and  sub- 
mitted to  by  the  public,  because,  while  individuals  can  invoke  the 
aid  of  the  State  against  a  powerful  private  corporation,  they  have 
no  means — unless  in  the  last  resort  and  in  cases  of  supreme  import- 
ance— of  redress  against  the  action  of  the  State  itself? 

Civil  Service  Rules  and  Promotion  by  Merit 

To  turn  to  a  different  point.  Railway  management,  on  its  main 
sides  of  policy,  operation  and  traffic,  is  essentially  a  commercial 
business,  requiring  commercial  training  and  commercial  apitude. 
The  railwayman,  if  he  is  to  serve  his  customers  and  his  shareholders 
properly,  must  look  ahead,  plan  boldly  for  the  future,  and  not  fear 
to  take  risks.  His  mind  must  be  alert  to  recognize  and  use  every 
new  technical  improvement,  that  so  he  may  give  the  best  possible 
service  at  the  minimum  possible  expense.  He  must  be  quick  to 
observe  the  course  of  trade,  the  changes  of  demand,  the  potentiali- 
ties of  new  markets  and  new  sources  of  supply,  and  to  adjust  his 
tariffs  accordingly.  Above  all,  he  must  keep  abreast  of  his  work, 
however  arduous,  even  though  it  means  working  all  day  and  half 
the  night,  and  double  tides  on  Sunday.  If  he  fails — at  least  in  the 
employ  of  a  private  company — he  goes ;  and  a  better  man  takes  his 
place. 

Can  we  expect  these  qualities  from  a  State  official?  Let  the 
Italian  Commission  answer.  It  is  true  they  wrote  35  years  ago, 
but  human  nature  has  not  greatly  altered  in  the  interval.  "On  a 
State  railway  system,  the  personnel  would  be  chosen  according  to 
Civil  Service  Rules.  Seniority  would  count  more  than  merit  or 
special  qualifications.  .  .  .  There  would  be  bureaucratic  dilatori- 
ness,  incompatible  with  railway  service.  This  applies  specially  to 
the  executive  officers,  who  need  to  have,  in  the  highest  degree,  in- 

44 


dustrial  energy,  initiative  in  planning  improvements,  commercial 
intelligence  essential  in  controlling  the  various  classes  of  expendi- 
ture; who  have  to  encourage  traffic,  improve  service,  maintain  dis- 
cipline, and  so  forth.  The  chief  officers  and  their  staff  must  have 
a  personal  interest  to  stimulate  them,  and  a  high  sense  of  respon- 
sibility to  encourage  them  to  perform  their  duty.  And  for  men 
like  these,  the  State  would  substitute  officials  with  no  personal  mer- 
est in  the  operating  results.  Further,  the  Government  employee  is, 
as  a  rule,  worse  paid  and  subject  to  less  severe  discipline  than  men 
in  private  employment,  and  consequently,  he  does  less  work. 

"When  the  operation  of  the  Upper  Italian  Railways  was  tem- 
porarily taken  over  by  the  State,  only  a  short  time  elapsed  before  the 
discipline,  energy  and  prompitude  of  the  staff,  which  had  been  ex- 
cellent, broke  down,  and  the  service  became  abominably  bad.  The 
general  rule  is  that  Government  employees  do  less  work;  conse- 
quently more  men  have  to  be  employed ;  and  the  wages  bill  accord- 
ingly goes  up." 

That  on  this  last  point,  the  Commissioners  were  true  prophets, 
the  Italian  experience  since  1909,  which  has  been  recorded  already, 
sufficiently  shows.  As  for  "industrial  energy,"  "initiative  in  im- 
provements" and  "commercial  intelligence,"  let  the  Prussian  history 
of  unchanged  methods  and  cast-iron  tariffs  testify.  But  there  is  a 
more  important  point  than  these.  There  is  general  agreement,  both 
in  America,  and  England,  that,  to  avoid  the  worse  evil  of  political 
patronage,  appointments  in  the  public  service  must  be  made  by 
Civil  Service  methods.  This  means  appointment  by  an  examination, 
mainly  literary,  at  an  early  age ;  a  life  tenure  except  in  cases  of  gross 
incompetence ;  and  promotion  mainly  by  seniority.  Will  any  human 
being  claim  that  American  railroads  would  have  achieved  their 
magnificent  record  of  technical  progress,  of  rates  steadily  reduced  in 
face  of  a  steady  rise,  not  only  of  railroad  wages,  but  of  prices  of 
almost  all  other  necessities  of  life,  if  the  management  of  the  railroads 
had  been  in  the  hands  of  men  originally  selected  by  an  examination 
forty  years  before,  who  had  since  risen  to  the  top,  not  as  the  result 
of  conspicuous  competence,  but  by  sheer  seniority?  And  would  the 
men  who  are  now  at  the  head  of  the  railways  have  stopped  in  the 
Government  service,  had  they  entered  it  as  young  men,  if  they  had 
only  had  the  prospects  of  promotion  and  compensation  which  Gov- 
ernment service  affords? 

Possible  Abuses  of  Private  Ownership 

At  this  stage  it  may  be  fairly  said  "Granted  that  State  railway 
systems,  like  all  other  human  institutions,  are  far  from  perfect,  what 
about  the  abuses  of  private  ownership?"  And  the  point  is  a  fair 

45 


one.  It  might  well  be  that  the  abuses  of  private  ownership  are  so 
great  that  State  ownership  implies,  at  least,  the  lesser  of  two  evils. 
How  do  the  facts  stand? 

In  he  old  days  in  England,  there  was  a  saying  of  an  Official 
of  the  Board  of  Trade, — afterwards  well  known  as  a  Director  of  one 
of  the  great  English  railways  and  President  of  the  Grand  Trunk 
Railroad  of  Canada,  Sir  Henry  Tyler, — which  became  famous :  "If 
the  State  does  not  control  the  railways,  the  railways  will  control 
the  State."  And  thirty  or  forty  years  ago,  when  the  railway  dir- 
ectors were  strongly  entrenched  in  a  House  of  Commons  elected  on 
a  very  restricted  suffrage,  the  phase  perhaps  represented  something 
more  than  a  mere  rhetorical  exaggeration.  In  reference  to  Eng- 
land, as  it  is  today,  the  idea  is  only  laughable.  The  railways  are 
absolutely  powerless  to  resist  public  opinion.  Five  and  twenty 
years  ago,  the  House  of  Commons  threw  into  the  waste  paper  bas- 
ket the  original  Schedules  of  Maximum  Rates — on  the  faith  of 
which  private  capitalists  had  embarked  five  billion  dollars  in  con- 
structing railways.  After  an  inquiry  lasting  over  ten  years,  they 
formally  enacted  new  Schedules  of  Maximum  Rates  which  the  com- 
panies "might  lawfully  charge  and  make."  The  companies  were  so 
ill-advised  as  to  take  Parliament  at  its  word.  And  they  proceeded 
in  many  instances  to  "charge  and  make"  accordingly  new  rates 
which  implied  considerable  advances  on  the  scale  then  in  force. 
Shippers  rose  in  revolt  and  refused  to  pay.  In  the  very  next  ses- 
sion, Parliament  deprived  the  companies  of  the  power  which  it  had 
given,  and  enacted  that  thenceforward  no  railway  company  should 
increase  any  rate  to  which  one  single  shipper  objected,  unless  the 
company  could  prove  affirmatively  in  a  court  of  justice  that  the  in- 
crease of  rate  was  justified  by  increased  cost  of  doing  the  business. 
Similarly  in  America.  There  was  a  time — it  will  hardly  be  denied 
by  anyone  today — when  the  great  railroads  had  inordinate  powers, 
and  those  powers  were  concentrated  in  the  hands  of  a  single  man. 
Not  only  might  he  abuse  them  for  private  interest,  but  in  any  case 
the  powers  were  despotic.  And  democracies  will  not  tolerate  des- 
potisms, even  if  benevolent.  But  the  president-despot — benevolent 
or  otherwise — has  long  been  dead.  And  his  day  returns  not.  Ser- 
ious critics,  both  in  England  and  America,  have  questioned  whether 
private  capital  will  continue  to  invest  in  railways,  if  the  State  con- 
tinues to  interfere  so  drastically  both  with  operation  and  with  rates. 
But  no-one  is  heard  seriously  to  assert  that  Parliament  and  Congress 
lack  the  power  to  make  their  will  effective,  whatever  the  railroads 
may  say  or  do. 

A  main  argument  put  forward  in  favor  of  the  nationalization  of 
railways  in  Prussia  was  that  the  tariff  system  of  the  private  com- 

46 


panics  was  honeycombed  with  rebates,  and  that  rebates  were  in- 
evitable under  private  ownership.  If  this  latter  statement  were 
true,  it  would  be  sufficient  justification  for  sweeping  away  private 
ownership,  without  more.  But  it  is  not  true.  If,  after  seventy 
years  of  private  ownership  in  France,  no  suggestion  has  ever  been 
heard  that  rebates  are  there  given,  it  is  fairly  safe  to  say  that  they 
have  not  been  given.  In  England  there  were  undoubtedly  special 
favors  given  to  certain  freighters  in  the  very  early  days,  not  probably 
from  corrupt  motives,  but  merely  as  a  matter  of  commercial  custom. 
To  big  customers  and  keen  bargainers  rate  concessions  always  had 
been  given  by  the  carriers,  whether  by  road  or  by  canal,  and  at  the 
outset  there  seemed  no  reason  why  railroads  should  not  follow  the 
example.  But  as  long  ago  as  1854,  in  words  that  were  practically 
copied  in  the  original  United  States  Act  to  Regulate  Com- 
merce thirty-three  years  later,  the  English  Parliament  enacted 
that  rates  should,  under  the  same  circumstances,  be  the  same  to  all ; 
and  that,  if  circumstances  were  different,  the  difference  in  rate 
should  be  proportionate  to  the  difference  in  circumstance.  And  there- 
upon, rebates  disappeared  from  English  railway  history.  "It  is  re- 
markable"— the  words  are  those  of  a  House  of  Commons  Committee 
reporting  in  1882  after  an  exhaustive  investigation  "that  no  wit- 
nesses have  appeared  to  complain  of  preferences  given  to  individuals 
by  railway  companies  as  acts  of  private  favor  or  partiality,  such  as 
were  more  or  less  frequent  in  the  years  before  the  Act  of  1854." 
One  still  sees,  from  time  to  time,  fines  inflicted  upon  American  rail- 
road companies  for  offences  of  this  nature.  But  in  almost  every 
case,  the  transgression  had  occurred  some  years  before  the  infliction 
of  the  fine.  It  is  safe  to  say  that  nobody  in  America  today  believes 
either  that  secret  rebates  exist  to  an  appreciable  extent,  or  that  the 
railroad  officials  desire  to  revive  the  practice  of  giving  them. 

Somewhat  analogous  to  direct  rebates  are  concessions  given  to 
traders  and  other  persons,  whom  it  is  desired  to  influence,  by  liberal 
payment  of  claims  for  loss  and  damage  of  freight,  by  under-classifi- 
cation,  free  transportation  and  so  forth.  In  France,  with  a  non- 
competitive  system,  such  practices  have  apparently  never  existed. 
In  England  they  have  never  cut  much  figure;  and  as  long  ago  as 
1902,  the  establishment  of  a  Joint  Claims  Committee  by  the  compa- 
nies themselves,  put  an  end  to  such  abuses  in  this  respect  as  did  exist. 
Free  passes  in  England  have  never  been  an  abuse,  of  which  the  best 
proof  is  that  they  still  remain  unregulated  by  law,  and  a  manager  can 
any  day  privately  give  a  free  pass  to  whom  he  pleases.  That  free 
transportaion  and  the  payment  of  bogus  claims  were  serious  abuses 
on  the  American  railroads  not  so  many  years  ago  is  undeniable. 
No  one  doubts  that  they  are  practically  eradicated  today.  And, 

47 


after  all,  the  abuse  of  free  transportation  is  not  confined  to  private 
railroads.  Not  very  many  years  ago,  the  "Melbourne  Age,"  the 
leading  paper  in  the  Australian  State  of  Victoria,  published  a  list, 
occupying  eleven  and  a  half  closely  printed  columns,  of  free  passes 
granted  by  the  State  railways  to  the  relations  and  friends  and 
dependents  of  Members  of  Parliament. 

State  Railways  Not  Usually  Profitable 

Our  history  has  then  reached  this  stage.  In  the  two  coun- 
tries where  the  railways  are  still  wholly  in  private  ownership,  the 
United  States  and  the  United  Kingdom,  nationalization  cannot  be 
justified  on  the  ground  of  lack  of  private  enterprise.  Nor  is  it 
necessary  to  avoid  abuses ;  for  those  abuses  can  be  either  prevented 
or  cured  by  adequate  State  regulation  and  supervision.  Further, 
it  does  not  appear  that  the  State  is  likely  to  build  railways  cheaper. 
Still  less,  that  it  will  surpass  private  companies  in  efficiency  of 
management,  and  will  therefore  have  available  more  net  revenue 
to  be  applied  either  to  improvement  of  service  or  reduction  of  rates 
in  the  country  as  a  whole. 

With  the  exception  of  the  South  African  Dominion — whose 
railways  are  not,  however,  important,  and  which  owe  their  moderate 
success  to  the  fact  that  the  great  mining  community  of  Johannes- 
burg, importing  almost  everything  it  consumes,  and  accustomed 
to  pay  gold  miners'  prices,  is  many  hundreds  of  miles  from  the  sea — 
Prussia  is  the  only  country  where  the  State  system  shows  a  sub- 
stantial profit  after  payment  of  operating  expenses  and  interest  on 
capital.  And  this  fortunate  position  Prussia  owes  to  two  things. 
It  bought  the  railways  at  a  most  opportune  moment,  just  before 
the  great  industrial  and  commercial  development  that  has  made 
modern  Germany;  and  the  Government  has  been  powerful  enough 
to  maintain  the  scale  of  rates,  as  we  have  se*en,  practically  unaltered 
over  a  long  series  of  years.  Belgium  roughly  makes  both  ends 
meet.  Switzerland  the  same.  The  smaller  German  States  and  the 
Australasian  Colonies,  speaking  broadly  over  a  series  of  years,  have 
to  make  up  some  part  of  their  interest  charges  out  of  general  tax- 
ation. Austria,  Italy,  and  France  on  its  State  railways,  as  we  have 
seen,  produce  deplorable  financial  results. 

Is  State  Management  More  Equitable? 

It  is,  however,  claimed  that  the  State  would  apportion  its  favors 
with  a  more  equal  hand;  would  level  the  backward  parts  of  the 
country  up  to  the  standard  of  the  better  developed ;  and  adjust  rates 
and  fares  more  equitably.  These  were  promises  made  by  the 

48 


Prussian  Government  when  they  took  over  the  railways.  And  so 
far  as  the  first  half  of  the  promise,  the  extension  of  the  railroads 
into  poor  districts,  is  concerned,  unquestionably  it  has  been  fulfilled. 
But  the  reason  is  to  be  found,  not  in  the  beneficence  of  the  State, 
so  much  as  in  the  fact,  that  the  only  power  in  Prussia  that  counts, 
beside  the  Throne,  is  that  of  the  agrarian  party,  the  Junkers.  Partly 
owing  to  their  hereditary  influence  over  the  Executive  government, 
and  partly  to  the  fact  hat  the  agricultural  disricts  are  enormously 
over-represented  in  the  Prussian  Parliament,  they  have  succeeded 
in  getting  a  good  share  of  the  surplus  revenues  from  the  manufac- 
turing districts  devoted  to  developing  their  own  estates.  On  the 
other  hand,  as  has  already  been  mentioned,  when  it  comes  to  tariffs, 
no  counry  has  gone  as  far  as  Prussia  in  giving  advantage  to  the  big 
shipper  over  the  small  man. 

In  Australia  undoubtedly  railroads  have  been  built  in  backward 
districts  which  private  enterprise  would  never  have  touched.  But 
if  a  railroad,  after  being  open  for  traffic  for  ten  or  a  dozen  years, 
still  hardly  does  more  than  pay  its  operating  expenses,  it  is  safe 
to  say  that  it  is  not  an  undertaking  which  would  have  been  entered 
upon  at  all  by  a  prudent  management,  had  it  been  free  to  spend  its 
capital  where  it  would  do  most  good  to  he  public  as  a  whole.  In 
other  words,  the  reason  why  such  a  line  was  built  was  political 
pressure.  And  that  such  lines  are  common  enough  all  over  Aus- 
tralia is  sufficiently  well-known.  Indeed,  the  report  of  the  Victorian 
State  Railways  for  1907  gives  a  list  of  seven  branches,  with  an 
aggregate  length  of  46  miles,  constructed  at  a  cost  of  $1,883,336, 
which  were  closed  for  traffic  at  various  dates  between  1898  and 
1904,  and  abandoned  altogether  because  gross  receipts  failed  even 
to  cover  operating  expenses. 

The  claim  that  the  State  will  adjust  rates  and  fares  more 
equitably  is  more  difficult  to  deal  with.  The  famous  Prussian 
Finance  Minister  von  Miquel  asserted  categorically  that  the  only 
possible  policy  for  a  State  system  was  to  adopt  a  rigid  tariff  uniform 
over  the  whole  country.  And  that  is,  in  fact,  the  Prussian  system 
of  today.  For  500  miles  the  rate  is  ten  times  that  for  50  miles. 
Whether  this  equitable  is  another  question.  It  certainly  does 
not  cost  the  railway  ten  times  as  much  to  do  the  business.  Nor 
does  it  seem  to  be  treating  the  shipper  in  accordance  with  the  canon 
of  taxation  which  says  that  the  end  to  be  aimed  at  is  equality  of 
sacrifice  by  the  taxpayer.  But,  be  that  as  it  may,  while  such  a  policy 
is  possible  for  Prussia,  with  only  a  small  seaboard,  and  where  the 
Government  owns,  not  only  the  railways,  but  the  canals,  it  is  un- 
thinkable in  England  or  in  America.  Imagine  an  English  Govern- 

49 


ment  charging  from  London  to  Edinburgh  ten  times  as  much  as 
for  the  first  forty  miles  out  of  London.  The  only  result  would  be 
to  drive  the  whole  of  the  traffic  to  the  coasting  steamers.  As  for 
America,  the  thing  is  still  more  impossible.  To  quote  an  extreme 
case: — the  fact  that,  after  years  of  deliberation,  the  Inter-State 
Commerce  Commission  has  finally  decided  that  it  is  reasonable 
to  charge  more  for  a  car-load  of  freight  from  Chicago  to  Denver 
than  from  New  York  to  San  Francisco  is  sufficient,  without  more, 
to  show  that  American  railways,  even  under  public  ownership, 
would  need  to  maintain  tariffs  in  broad  outline  such  as  those  existing 
today.  Certain  modifications  might,  and,  no  doubt,  would,  take 
place  gradually;  but  the  essence  of  the  thing  would  needs  remain 
unchanged.  Tariffs,  that  is,  would  continue  to  be  dictated,  not  by 
a  priori  theories,  but  'by  economic  necessities.  And  such  tariffs, 
one  might  say  further,  would  continue  to  be  denounced  as  unjust 
and  unreasonable — as  the  Inter-Mountain  Rates  have  been  for  a 
generation  by  the  citizens  of  Colorado — by  those  whom  they  ap- 
peared to  prejudice,  and  who  would  naturally  lay  the  blame  on  the 
railroad  managers  whom  they  see,  and  not  on  nature  and  geography 
which  keep  in  the  background. 

National  Railways  in  a  Democratic  State 

We  come  now  to  a  more  important  point,  a  point  which  may 
probably  be  said  to  be  of  more  importance  than  all  the  others  put 
together.  Prussia  is  undoubtedly  the  most  successful  instance  of 
State  Railway  management.  Reasons  have  been  given  already  for 
thinking  that  the  Prussian  success,  achieved  under  uniquely  favor- 
able circumstances,  is  not  so  much  to  boast  of  after  all.  But  let 
it  be  admitted  for  the  sake  of  argument  that  the  success  is  as  brilliant 
as  it  appears  to  the  imagination  of  the  most  enthusiastic  German 
professor.  The  point  cannot  be  too  much  insisted  on  that  the 
success  of  the  Prussian  autocracy  is  no  argument  for  similar  success 
in  the  hands  of  English  or  American  democracies. 

A  great  American,  who  has  passed  over  to  the  majority  within 
the  last  twelve  months,  Mr.  Charles  Francis  Adams,  put  the  matter 
nearly  forty  years  ago  in  words  that  have  so  often  been  quoted 
that  they  have  become  classic : 

"In  applying  results  drawn  from  the  experience  of  one  country 
to  problems  which  present  themselves  in  another,  the  difference  of 
social  and  political  habit  and  education  should  ever  be  borne  in  mind. 
Because  in  the  countries  of  continental  Europe  the  State  can  and 
does  hold  close  relations,  amounting  even  to  ownership,  with  the 
railroads,  it  does  not  follow  that, the  same  course  could  be  success- 

50 


fully  pursued  in  England  or  in  America.  The  former  nations  are 
by  political  habit  administrative,  the  latter  are  parliamentary;  in 
other  words,  France  and  Germany  are  essentially  executive  in  their 
governmental  systems,  while  England  and  America  are  legislative. 
Now  the  executive  may  design,  construct,  or  operate  a  railroad ;  the 
legislative  never  can.  A  country,  therefore,  with  a  weak  or  un- 
stable executive,  or  a  crude  and  imperfect  civil  service,  should  accept 
with  caution  results  achieved  under  a  government  of  bureaus."* 

A  railroad  is  a  great  business  concern.  And  as  every  business 
man  knows,  a  business  concern,  if  it  is  to  prosper,  must  have  a 
single  directing  mind  at  the  head.  Under  an  autocratic  system,  the 
head  is  the  Minister  of  Railways  ultimately  responsible  to  the 
Monarch,  and  to  him  alone.  He  may  consult  his  customers,  pas- 
sengers and  shippers,  listen  to  their  grievances  and  welcome  their 
suggestions — the  Prussian  Government  has  an  admirably  organized 
system  of  district  and  national  councils  for  this  very  object.  But  he 
alone  decides.  The  King  of  Prussia  is  as  really  the  head  of  the 
railroads  as  he  is  the  head  of  the  army.  Between  a  railway  chief 
in  this  position  and  a  Minister  in  a  democratic  country,  changing 
every  few  years  as  his  party  goes  in  or  out  of  power,  liable  at  any 
moment  to  be  out-voted  if  he  refuses  a  concession  that  a  substantial 
section  of  members  of  the  legislature  combine  to  demand,  no  com- 
parison is  possible.  "The  executive  may  design,  construct,  or 
operate  a  railroad."  And  this  is  what  happens  in  Prussia.  "The 
legislative  never  can,"  and  in  democratic  countries  it  is  the  legis- 
lative branch  of  the  Government  which  not  only  decides  policy  but 
dictates  always  in  main  outline,  often  down  to  the  detail  of  a  par- 
ticular appointment  or  a  special  rate,  how  the  policy  shall  be  carried 
out. 

It  may  be  objected  that  in  every  country,  whatever  be  the  form 
of  Government,  the  State  runs  the  Post  Office ;  and  in  almost  every 
country  the  telegraphs,  if  not  the  telephones  also.  If  it  can  manage 
these,  why  not  also  railroads?  The  answer  is  that  between  these 
two  classes  of  business  there  is  no  analogy.  The  Post  Office  is  a 
purely  executive  business,  with  no  commercial  side  to  it.  Uniform 
rates,  two  cents  or  a  penny  or  whatever  the  figure  be,  equal  for  all 
distances,  are  accepted  as  a  matter  of  course.  The  amount  is  so 
small  that  nobody  objects.  If  the  charge  for  a  letter  were,  not  two 
cents  but  a  dollar,  people  would  fast  enough  be  found  to  protest  that 
it  was  unreasonable  to  charge  the  same  from  Wall  Street  to  Central 
Park  as  from  Boston  to  San  Francisco.  A  business  such  as  this 
can  be  managed  well  enough  by  a  civil  service  organization.  It  is 


'"Railroads:    Their  Origin  and  Problems."    Edition  of  1888.    Page  115. 

51 


essentially  a  matter  of  routine  and  operating  efficiency.  There  may 
be,  in  fact  there  usually  is,  political  interference  in  reference  to 
appointments  and  promotions.  And  the  staff  no  doubt  avail  them- 
selves of  their  votes  to  improve  their  wages  and  working  conditions. 
But  this,  though  a  pretty  serious  matter,  is  not  so  vitally  important 
as  the  difficulties  on  the  side  of  commercial  management. 

Whether  a  new  railroad  shall  be  built  is  not  a  matter  where 
precedents  and  fixed  rules  can  decide.  It  can  only  be  decided  by  a 
man  able  to  bring  to  bear  on  the  question  a  trained  mined  and  ripe 
judgment,  after  taking  into  account  all  the  factors  of  probable 
traffic,  probable  cost,  and  whether  the  limited  amount  of  capital 
available  would  not  be  better  employed  elsewhere,  perhaps  in 
something  like  double  tracking,  or  the  construction  of  a  new  classifi- 
cation yard,  which  does  not  appear  directly  to  benefit  any  single 
member  of  the  public.  It  is  hard  enough  for  the  best  man,  left 
free  to  exercise  his  unbiased  judgment,  to  decide  such  questions 
rightly.  Can  it  be  expected  that  they  will  be  decided  rightly  by  a 
Minister  responsible  to  a  democratic  legislature,  each  member  of 
which,  naturally  and  rightly,  makes  the  best  case  he  can  for  his  own 
constituents,  while  he  is  quite  ignorant,  even  if  not  careless,  of  the 
interests,  not  only  of  his  neighbor's  constituency,  but  of  the  public 
at  large?  The  answer  is  written  large  in  railway  history. 

Politics  in  South  African  Railways 

It  may  be  said  without  fear  of  contradiction  that  in  no  demo- 
cratic community,  where  the  railways  are  run  by  the  public  authori- 
ties, is  railway  capital  spent  on  construction,  developments  and 
improvements,  or  railway  operation  conducted,  with  a  single  eye 
to  the  best  interests  of  the  whole  community.  To  produce  public 
evidence  of  this  statement  is  not  easy.  It  is  not  fair  to  quote 
unsupported  assertions  in  newspapers  or  elsewhere,  as  though  they 
were  proof.  The  men  who  know  the  facts  from  the  inside  are  not 
i  i  a  position  to  publish  them.  But  of  recent  years,  South  Africa 
has  spoken  out  with  considerable  freedom  on  the  subject  in  official 
documents.  And  South  Africa  may  well  serve  as  a  sample.  In 
March,  1907,  a  Commission  on  the  Cape  Railways  reported  unani- 
mously that  it  "was  impressed  with  the  necessity  of  removing  as 
far  as  possible  the  management  of  the  railways  from  the  influence 
of  party  politics."  Here  is  in  more  detail  an  account  of  the  reasons 
which  led  them  to  that  conclusion.  The  quotation  is  from:  "A 
Memorandum  relative  to  Railway  Organization,  prepared  at  the 
request  of  the  Railway  Commissioners  of  the  Cape  Government 
Railways,  by  Sir  Thomas  R.  Price,  formerly  general  manager  of 

52 


those  railways,  and  now  general  manager  of  the  Central  South 
African  (i.  e.,  Transvaal  and  Orange  River)  Railways,  dated  Johan- 
nesburg, February  22nd,  1907." 

"Political  Influences — Disturbing  Effect  of. 

"The  drawbacks  in  the  management  of  the  railways  in  the  Cape 
that  call  for  removal  arise  from  the  extent  to  which,  and  the  manner 
in  which,  the  authority  of  Parliament  is  exercised.  They  are  two- 
fold in  their  character,  viz. : 

"(1)  The  practice  of  public  authorities,  influential  persons,  and 
others  bent  on  securing  concessions  or  other  advantages  which  the 
general  manager  has  either  refused  in  the  conscientious  exercise 
of  his  functions,  or  is  not  likely  to  grant,  making  representation  to 
the  Commissioner  (as  the  ministerial  head  of  the  Government), 
supplemented  by  such  pressure,  political  influence,  or  other  means 
as  are  considered  perfectly  legitimate  in  their  way,  and  are  best 
calculated  to  attain  the  end  applicants  have  in  view. 

"(Many  members  of  Parliament  act  similarly  in  the  interests  of 
the  districts,  constituents,  or  railway  employees  in  whom  they 
happen  to  be  interested.  It  is  by  no  means  unknown  for  the  re- 
quests in  both  classes  of  cases  to  coincide  somewhat  with  a  critical 
division  in  Parliament — present  or  in  prospect — or  otherwise  some- 
thing has  occurred  which  is  regarded  as  irritating  to  the  public 
or  embarrassing  to  the  Government,  and  the  desire  to  minimize 
the  effect  by  some  conciliatory  act  is  not  unnatural). 

"(2)  The  extent  to  which  the  fictitious,  and  often  transitory 
importance  which  a  community  or  district  manages  to  acquire 
obscures  (under  the  guise  of  the  Colony's  welfare)  the  considera- 
tion of  the  railway  and  general  interests  of  the  Colony  as  a  whole." 

"(During  the  earlier  period  of  my  railway  service  in  the  Cape 
Colony  few  things  impressed  me  more,  coming  as  I  did  from  a 
railway  conducted  on  strictly  business  lines,  than  the  extent  to 
which  the  conduct  of  railway  affairs  was  influenced  by  certain  con- 
ditions. Nor  was  this  impression  lessened  afterwards,  when  in  the 
course  of  a  conversation  on  the  matter,  Sir  Charles  Elliott  mentioned 
to  me  that  he  had  more  than  once  told  a  late  Railway  Commissioner 
'The  Government  is  powerful,  but  [mentioning  the  town  and 
authority]  is  more  powerful  still')." 

"I  do  not  regard  it  as  open  to  doubt  that  the  Colony  as  a  whole 
has  suffered  severely  in  consequence,  the  inland  portions  of  the 
Colony  particularly  so ;  and  that  the  need  for  a  remedy  is  pressing 
if  the  railroads  are  to  be  conducted  as  a  business  concern  for  the 
benefit  of  the  Colony. 

53 


"Means  of  Securing  Freedom  from  Political  Influences." 

"The  necessity  for  the  railways  and  their  administration  being 
removed  from  such  an  atmosphere,  and  treated  as  a  most  valuable 
means  of  benefiting  the  Colony  as  a  whole,  whilst  not  neglecting 
the  interests  of  a  district  (but  not  subordinating  the  welfare  of  the 
whole  Colony  thereto),  is  pressing.  That  there  should  be  an  au- 
thority to  refer  to  in  case  of  real  necessity,  where  the  decision  or 
action  of  the  general  manager  is  not  regarded  as  being  in  the  public 
interest,  is  also  clear.  But  it  is  equally  manifest  that  the  Com- 
missioner or  the  Government  of  the  day,  with  political  or  party 
consideration  always  in  view,  is  not  the  proper  court  of  reference. 

"Political  Influences  as  affecting  Construction  of  New  Lines. 

"There  can  be  little  doubt  that  in  the  Cape  Colony  political  con- 
siderations have  influenced  the  adoption  of  new  lines  and  their 
construction — many,  if  not  most  of  them,  of  an  unprofitable  charac- 
ter— without  sufficient  inquiry  or  information,  often  with  scanty 
particulars,  and  possibly  contrary  to  the  advice  of  the  officer  after- 
wards entrusted  with  the  construction  and  working  of  the  line. 

"Proposals  for  New  Lines — Procedure  recommended. 

"A  material  change  is  imperatively  necessary  in  this  respect,  if 
only  to  insure  solvency  of  the  Colony." 

Neither  the  Commision's  Report  nor  Sir  Thomas  Price's  Memo- 
randum can  have  sufficed  to  change  matters,  for  in  May,  1915,  there 
was  a  further  "Memorandum  on  the  Control  and  Management  of 
Railways  and  Harbors"  presented  to  the  South  African  Parliament 
by  the  Board  of  Railway  Commissioners.  Here  are  some  extracts 
from  it:  "Any  Minister,  however  able  and  strong  his  character 
may  be,  is,  under  the  system  of  party  government,  insensibly  sus- 
ceptible to  party  considerations  and  is  in  constant  difficulties  in 
giving  impartial  decisions.  *  *  *  It  is  perhaps  natural  that  men  who 
have  been  accustomed  to  the  methods  in  vogue  when  the  railways 
were  of  limited  extent  should  still  desire  to  cling  to  the  old  system 
of  control,  but  the  consequences  of  doing  so  cannot  but  be  unsatis- 
factory. *  *  *  As  the  railways  and  their  working  were  regarded  as 
part  and  parcel  of  the  system  of  party  government,  with  the  obvious 
advantage  to  the  party  in  power,  the  reluctance  of  any  Government 
to  make  a  change  is  what  might  naturally  be  expected.  Apart  from 
the  magnitude  of  the  railways  and  the  number  of  the  railway  ser- 
vants employed,  forces  have  of  late  years  come  into  prominence 
that  make  it  increasingly  urgent  that  the  railways  and  harbors 
should  be  regarded  and  administered  in  the  interests  of  the  whole 
Union  and  not  as  an  adjunct  of  the  party  that  is  in  power." 

54 


Politics  in  Australia 

Official  documents  have  not  let  us  behind  the  scenes  in  Austral- 
asia, in  the  same  way  as  has  been  the  case  in  South  Africa.  But 
the  public  history  is  sufficiently  striking.  Down  to  the  year  1884, 
the  railways  in  all  the  different  colonies  were  managed,  like  any 
other  department  of  the  Government,  by  a  Minister  directly  respon- 
sible to  Parliament.  This  system  was  not  a  success,  either  from  the 
financial  or  any  other  point  of  view.  In  1884,  Victoria  led  the  way 
to  the  adoption  of  a  new  system.  A  buffer  was  inserted  between 
the  politicians  and  the  railways  in  the  shape  of  a  non-political  com- 
mission. The  Commission  was  composed  of  three  men  holding  office 
for  a  fixed  term  of  five  years,  and,  like  judges,  irremovable  except  on 
a  vote  of  both  houses  of  Parliament.  The  members  were  all  profes- 
sional railway  men,  and  the  Chief  Commissioner  had  the  right,  in 
case  of  disagreement,  to  over-rule  his  colleagues.  A  well-known 
English  railway  man  was  appointed  to  fill  the  post  of  Chief  Com- 
missioner. The  Commission  had  not  power  to  undertake  the  con- 
struction of  new  lines  without  the  consent  of  the  Ministry,  but  the 
entire  responsibility  for  the  maintenance  and  working  of  the  exist- 
ing lines  was  handed  over  to  them. 

The  example  of  Victoria  was  followed  by  South  Australia  in 
1887,  by  New  South  Wales  in  1888,  and  by  Queensland  and  New 
Zealand  shortly  after.  In  each  case,  the  first  Chief  Commissioner 
was  an  English  railway  man.  In  Victoria,  the  new  system  was 
not  over-successful.  Political  pressure  still  continued.  The  financial 
position  got  worse.  Budget  estimates  of  expenditure  were  largely 
exceeded.  And,  as  has  already  been  mentioned,  free  transportation 
was  given  on  a  wholesale  scale  to  the  dependents  of  members  of 
Parliament.  After  much  mutual  recrimination,  the  Commission 
was  abolished,  and  the  railways  handed  back  to  direct  political  con- 
trol. Evidently  a  Commission  which,  though  composed  of  individu- 
als personally  clean-handed,  is  not  strong  enough  to  crush  attempts 
at  jobbery  in  its  neighborhood,  may  be  even  worse  for  the  public 
interest  than  a  Minister  who  uses  his  patronage  for  political  ends. 
For  the  Minister  can  at  least  be  watched  and  exposed  in  Parliament 
by  political  opponents,  while  a  Commission  can  take  shelter  under 
the  cloak  of  its  statutory  irresponsibility. 

The  experience  of  New  South  Wales  was  different.  The  Chief 
Commissioner  appointed  in  1888  was  not  merely  a  brilliantly  able 
administrator,  but  a  man  of  iron  will.  He  insisted  on  managing 
the  railroads  committed  to  his  care  solely  in  the  public  interest.  And 
within  four  years,  he  had  succeeded  in  simultaneously  advancing 
wages,  reducing  rates,  and  increasing  net  earnings  by  56  per  cent. ; 

55 


thus  restoring  the  finances  to  a  satisfactory  position.  The  result  was 
curious.  The  Commission  was  persecuted  by  a  "large  number  of 
people  whose  influence  was  at  an  end  under  a  changed  state  of  af- 
fairs." Two  Commissions  of  Inquiry  were  appointed  to  investigate 
the  alleged  misdeeds  of  the  Commissioners.  They  found  an  unhesi- 
tating verdict  for  the  defendants  on  every  count  of  the  long  indict- 
ment. An  address  of  confidence  was  signed  by  thousands  of  electors 
-  all  over  the  colony  and  presented  to  the  Commissioners  at  an  en- 
thusiastic meeting  of  five  thousand  citizens  of  Sydney.  The  Com- 
missioners were  reappointed  for  a  second  term  of  five  years;  but 
early  in  his  second  term  the  Chief  Commissioner  died  suddenly. 
Within  a  few  years  things  had  gone  so  far  wrong  that  a  Royal  Com- 
mission was  appointed  to  investigate.  As  a  result  of  their  report 
two  out  of  the  three  Commissioners  were  called  upon  to  retire. 

It  is  not  possible  here  to  go  through  the  varying  histories  of  all 
the  colonies.  One  important  phase  of  the  history  must  not,  however, 
be  passed  over.  In  Victoria,  in  1903,  there  was  a  fierce  railway 
strike,  which,  by  the  threat  of  a  drastic  Bill  introduced  in  Parlia- 
ment with  the  support  of  an  almost  unanimous  public  opinion,  was 
promptly  put  down.  Thereupon  an  Act  was  passed  depriving  all 
railway  servants  of  their  local  vote,  placing  them  on  a  separate  and 
distinct  register,  and  giving  them  power  to  elect  as  their  special 
representatives  one  member  to  the  Council  and  two  to  the  Assembly. 
In  1906  this  Act  was  repealed  and  superseded  by  "An  Act  to  abolish 
separate  representation  in  Parliament  of  Public  Officers  and  Rail- 
way Officers."  Section  IV,  (1)  and  (2)  of  this  Act,  which  is  still 
in  force,  is  as  follows : 

(1).  "In  order  that  all  officers  may  be  enabled  to  render  loyal 
and  efficient  service  to  the  State,  it  is  hereby  enacted  that  no  person 
or  class  of  persons  employed  in  any  capacity  (whether  permanently 
or  temporarily)  in  the  Public  Service  (including  the  Railway  Serv- 
ice, the  Police  Force,  the  State  Rivers  and  Water  Supply  Depart- 
ment and  the  Lunacy  Department)  shall  either  directly  or  indirectly 
take  any  part  whatsoever  in  or  in  relation  to  election  of  members 
to  the  Legislative  Council  or  the  Legislative  Assembly,  or  directly 
or  indirectly  in  any  way  take  part  in  the  political  affairs  of  the  State 
of  Victoria,  otherwise  than  by  recording  a  vote  at  a  Parliamentary 
election ;  and  no  person  or  class  of  persons  so  employed  shall  di- 
rectly or  indirectly  use  or  attempt  to  use  any  influence  in  respect 
to  any  matter  affecting  the  remuneration  or  position  in  the  Public 
Service  of  either  himself  or  any  other  person. 

(2).  If  any  person  so  employed  is  guilty  of  any  contravention  of 
this  section,  then  on  proof  thereof  to  the  satisfaction  of  the  Public 
Service  Commissioner,  the  Commissioners  of  Railways,  the  Chief 

56 


Commissioner  of  Police,  or  the  State  Commissioners  and  Water 
Supply  Commissioners,  or  the  Inspector  General  of  the  Insane  (as 
the  case  may  be)  such  person  may  by  the  said  authority  be  fined 
any  sum  not  exceeding  £  10  and  may  be  reduced  in  class,  subdivision, 
grade  or  status,  and  salary,  or  he  may  be  dismissed  or  his  services 
may  be  dispensed  with,  provided  that  such  person  shall  not  be 
dismissed  or  have  his  services  dispensed  with  for  any  contravention 

»of  this  Section  without  the  consent  of  the  Governor  in  Council." 
Victoria  had  in  1903  again  reverted  to  the  Commissioner  system. 
It  imported  an  expert — this  time  from  America — and  a  striking  im- 
provement, both  in  operating  and  financial  results,  at  once  became 
evident.  Since  then  there  has  been  a  relapse,  and  it  is  understood  that 
at  present  Victoria  is  once  more  considering  the  importation  of  a 
new  expert.  In  fact,  in  almost  every  colony,  the  management  has 
gone  through  various  phases.  Sometimes  there  have  been  Commis- 
sions of  three,  at  other  times  single  Commissioners.  At  one  time  a 
Commission  has  had  full  power;  at  another  time  it  has  been  more  or 
less  subordinated  to  a  Minister.  Or,  again,  the  Commission  has  been 
abolished  altogether,  and  the  railways  have  been  worked  by  a  gen- 
eral manager  whose  position  is  definitely  that  of  a  Ministerial  sub- 
ordinate. 

Another  point  may  be  noted.  For  thirty  years  most  of  the  Aus- 
tralian States  have  imported  their  chief  official,  whether  entitled 
Commissioner  or  General  Manager,  from  England.  They  have  not 
had  the  pick  of  the  English  railway  service.  For  neither  in  authority 
nor  in  compensation  is  the  position  in  Australia  comparable  to  that 
of  a  General  Manager  of  one  of  the  great  English  railways.  And  yet 
the  practice  continued.  What  shall  be  said  of  an  organization 
which  cannot  train  its  own  young  men  to  become  chief  executives? 
That  the  men  are  there,  there  can  be  no  doubt.  No  one  would  sug- 
gest that  the  average  Australian  is  inferior  to  the  average  English- 
man. Is  not  the  reason  that,  in  a  commercial  concern,  promotion 
by  merit  not  only  brings  the  best  men  to  the  top,  but  stimulates 
every  man  to  do  his  best,  while  Government  service  usually  only 
gets  work  done  at  the  rate  of  what  is  known  in  England  as  the 
"Government  stroke." 

Politics  in  Belgium 

The  history  of  Belgium  affords  a  singular  contrast  to  that  of 
Australia.  There  has  been  no  attempt  to  interpose  a  buffer  authority 
between  Parliament  and  the  railways.  The  political  Minister  is 
frankly  the  head  of  the  railway  system.  And  what  is  more  remark- 
able the  same  political  party — called  Catholics  by  themselves  and 
Clericals  by  their  opponents — have  been  in  power  for  32  consecutive 

57 


years,  and  up  to  the  time  of  the  war,  they  showed  no  signs  of  losing 
their  hold  on  the  management  of  affairs.  It  is  claimed  by  the 
Liberal  and  Labor  opponents  of  the  present  Ministry  that  this  long 
tenure  of  office  is  in  large  measure  due  to  the  patronage  and  influ- 
ence which  their  possession  of  the  railways  gives  them.  Certain  it 
is  that  about  six  per  cent,  of  the  total  votes  polled — in  Belgium,  vot- 
ing is  compulsory — are  those  of  the  railway  staff.  Certain  it  is,  too, 
that  the  State  administration  does  not  err  on  the  side  of  employing 
too  small  a  staff.  Per  kilometer  of  line  open  it  employs  19.1  per- 
sons, while  the  Northern  Railway  Company  of  France  on  its  lines 
in  Belgium,  where  the  traffic  is  certainly  not  below  the  average 
of  the  State  system,  only  finds  it  necessary  to  employ  12.91.  It  is 
certain  also,  that,  while  the  goods  rates,  which  are  only  directly 
paid  by  a  few  persons,  have  been  maintained  unreduced — it  is  fair 
to  remember  that  even  now  they  are  the  lowest  in  Western  Europe 
— passenger  fares,  which  appeal  to  the  general  public,  have  been 
brought  down  to  a  point  which  experts  say  results  in  an  actual  loss. 
The  long  distance  workmen's  weekly  tickets  have  often  been  re- 
ferred to  with  admiration.  In  the  case  of  the  longest  distance,  the 
rate  charged  comes  down  to  as  low  as  six  miles  for  one  cent.  Pro- 
fessor Mahaim*  regards  these  workmen's  tickets  as  "a  boon  which 
has  rendered  the  population  mobile,  and  solves  the  problem  of  unem- 
poyment."  The  opponents  of  the  Ministry  tell  another  story,  and 
assert  that  these  tickets  are  issued  in  order  to  prevent  workmen 
leaving  the  country  districts,  where  they  remain  under  the  influence 
of  their  priests,  and  coming  to  live  near  their  work  in  the  towns, 
where  they  might  be  subject  to  other  political  influences.  They 
assert  that  it  is  not  in  the  interests  of  the  workmen  that  they  should 
be  encouraged  to  live  so  far  from  their  work  that  in  extreme  cases 
they  have  to  leave  home  at  3.30  or  4  o'clock  in  the  morning,  and  only 
get  back  at  11  o'clock  at  night.  And  this  view  has  very  recently  re- 
ceived support  from  one  who  cannot  be  regarded  as  a  political  oppo- 
nent. Writing  in  the  "Independence  Beige"  for  20th  September, 
1916,  Father  Rutten,  a  very  well-known  and  influential  priest,  and 
a  strong  supporter  of  the  Government,  says :  "Better  and  cheaper 
connection  with  the  suburbs  will  alone  induce  workmen  to  desert 
the  crowded  centres ;  but  matters  must  not  be  pushed  to  the  other 
extreme  of  further  multiplying  the  workmen's  fares.  I  have  seen 
at  too  close  quarters  the  demoralizing  of  the  Flemish  worker  who 
has  to  spend  every  day  four  or  five  or  even  six  hours  on  the  railway, 
in  crowded  carriages,  in  an  atmosphere  that  in  winter  is  not  fit  to 
breathe.  Living  in  the  country  is  all  very  well ;  but  the  benefits  are 


""Railways  and  the  State,"  London.  1912. 

58 


greatly  reduced  by  the  necessity  of  these  long  journeys  and  by  the 
hours  spent  in  the  saloons  alongside  the  stations." 

It  may  be  added,  that  whatever  the  reason  be,  the  Ministry  have 
been  so  strongly  opposed  to  bringing  workmen  to  reside  in  the  big 
towns  that,  not  only  have  they  done  little  or  nothing  to  develop  sub- 
urban traffic  in  the  immediate  neighborhood  of  Brussels,  but  they 
have  steadily  refused  the  request  of  the  railway  officials  that  work- 
men's cottages  might  be  built  near  the  big  stations,  so  that  men 
might  be  at  hand  at  all  times  of  the  day  and  night  for  urgent  require- 
ments of  snow  storms,  accidents  and  the  like. 

In  the  matter  of  train  service,  it  will  hardly  be  denied  that  the 
Belgian  State  railways  are  inferior  to  all  their  neighbors;  every 
passenger  entering  Belgium  from  France  is  conscious  of  a  marked 
slowing  down  of  the  train.  Indeed,  the  international  service  be- 
tween Ostend  and  the  German  frontier  was  so  poor  that  the  Prussian 
Government  is  understood  to  have  threatened  to  divert  the  English 
Mail  via  Holland  and  Flushing  unless  it  was  improved. 

Antwerp  and  Brussels,  the  two  principal  towns  in  the  country, 
with  a  population  of  over  a  million  between  them,  are  only  27j^ 
miles  apart;  until  quite  recently  the  best  train  took  practically  an 
hour  over  the  journey.  The  slowness  of  the  trains  is  partly  to  be 
explained  by  the  fact  that  expenses  have  been  rising  fast  in  recent 
years,  and  the  State  Administration  has  economized  in  road  main- 
tenance. And  M.  Mahaim  gives  figures,  of  which  he  apparently 
does  not  fully  appreciate  the  significance  showing  that,  while  be- 
tween 1901  and  1908  total  operating  expenses  rose  25  per  cent.,  road 
maintenance  expenditure  only  rose  1.7  per  cent.  And  every  railway 
man  knows  what  this  means.  Nor  can  it  be  denied  that  the  Belgian 
Government  has  been  behind  the  times  in  necessary  new  capital 
outlay.  To  give  one  striking  instance:  A  direct  underground 
connection  between  the  Northern  and  Southern  stations  at  Brussels 
has  been  recognized  as  necessary  for  a  quarter  of  a  century.  The 
work  was  only  commenced  just  before  the  war,  up  to  which  time 
the  only  access  to  the  Northern  Station  was  over  a  single  track 
known  to  the  Brussels  newspapers,  owing  to  the  frequency  of 
accidents  on  it,  as  "the  death  trap." 

In  Belgium  the  Railway  Budget  and  the  State  Budget  are  inex- 
tricably entangled.  Promises  have  been  frequently  made  that  the 
two  budgets  should  be  separated,  as  in  Switzerland  and  Italy,  but 
hitherto  the  promises  have  not  been  carried  out.  Official  figures 
do  indeed  give  the  total  amount  of  the  railway  debt.  But  there  are 
no  separate  railway  loans ;  the  whole  money  has  in  fact  been  raised 
on  the  general  credit  of  the  State.  The  Railway  Accounts  show  a 
figure  of  some  $3,859,040  per  annum  charged  as  "sinking  fund." 

59 


But  in  fact  no  sinking  fund  payment  is  really  made,  and  the  figure 
is  a  mere  book  entry. 

When  the  Chicago  and  Alton  railway  under  Mr.  Harriman's 
management  went  back  into  the  old  books,  extracted  items  of  what 
were  really  Capital  Expenditures  but  which  had  been  paid  out  of 
Revenue,  and  then  proceeded  to  capitalize  the  result,  Americans 
denounced  it  as  a  financial  scandal.  But  the  example  had  been  set 
by  the  State  Administration  of  Belgium  some  years  before.  In  1897, 
the  Ministry  went  back  on  the  sixty-three  previous  budgets,  ex- 
tracted a  host  of  small  additions  to  works  and  equipment  which 
had  been  charged  to  Revenue  under  the  category  of  Renewals, 
making  together  a  total  of  over  $2,122,472,  and  charged  them  back 
against  Capital.* 

Efforts  have  been  made  from  time  to  time,  not  only  to  separate 
the  Railway  Budget  from  the  General  Budget,  but  to  withdraw  the 
actual  management  of  the  railways  from  the  political  Minister.  In 
1905,  for  example,  when  M.  Liebeart  was  Minister  of  Public  Works, 
the  general  management  was,  in  the  interests  of  discipline,  handed 
over  to  an  expert  railway  man.  The  reform  immediately  produced 
excellent  results.  But  the  deputies  complained  that  their  recommen- 
dations had  ceased  to  be  received  with  sufficient  attention,  and  one  of 
the  first  acts  of  M.  Helleputte,  who  succeeded  M.  Liebeart  as  Min- 
ister in  1907,  was  to  resume  all  authority  into  his  own  hands.  How 
that  authority  is  exercised  can  be  judged  by  one  or  two  instances. 
According  to  the  regulations,  for  every  place  vacant  that  is  not  open 
to  competition,  a  candidate  must  be  entered  on  one  of  five  categories. 
The  first  three  categories  are  composed  of  sons  of  officials  possessing 
various  qualifications.  The  fourth  category  is  composed  of  persons 
recommended  to  the  Minister's  private  secretary  by  senators,  depu- 
ties, or  priests.  The  fifth  category  comprises  everybody  else.  The 
categories  are  taken  in  order.  In  practice  the  first  three  categories 
provide  very  few  candidates,  and  broadly  no  one  is  ever  appointed 
except  from  the  fourth  category,  "recommended  candidates."  The 
railway  officials  have  tried  to  mend  matters  by  filling  as  many  posts 
as  possible  by  competition.  The  Ministry  fights  against  this  en- 
roachment  on  its  influence.  For  instance,  open  competition  for 
the  posts  of  road-foreman  and  running-shed-foreman  has  been  put 
a  stop  to.  Promotion  is  nominally  by  seniority,  except  in  cases  of 
exceptional  merit.  In  practice  there  is  good  reason  to  believe  that 
the  exceptional  merit  is  mainly  of  a  political  kind.  The  superior 
officers  are  forbidden  to  mix  themselves  with  politics,  which,  in 
practice,  means  that  they  are  forbidden  publicly  to  express  opinions 


*See  the  official  "Compte  Rendu"  for  1912,  p.  A89. 

60 


than  those  of  the  Government.  Similarly  the  formation  of 
associations  among  the  rank  and  file  of  the  staff  is  closely  super- 
vised.* It  is  claimed  that,  while  Catholic  workmen  are  free  to 
associate  as  they  please,  associations  of  an  opposite  tendency  live 
under  a  constant  threat  of  dissolution. 

Here  is  a  quite  recent  story.  On  the  occasion  of  the  elections  in 
June,  1912,  as  the  result  of  orders  direct  from  the  Cabinet  of  the 
Minister  himself,  increases  of  wages  were  granted  and  paid  to  a 
large  number  of  men  on  the  very  day  before  the  vote  was  taken,  and 
these  increases  were  made  to  date  back  to  the  previous  1st  January, 
The  Minister  was  accused  in  Parliament  of  having  ordered  these 
increases  by  telegraph ;  he  replied  that  the  accusation  was  not  true. 
He  was  quite  accurate  in  his  statement.  The  order  had  been  given 
by  telephone. 

As  is  well  known,  the  Catholic  party  is  mainly  composed  of  the 
Flemish  portion  of  the  population,  while  the  Liberals  and  Socialists 
are  mainly  French  and  Walloon.  Two  somewhat  amusing  instances 
of  the  encouragement  of  Flemish  aspirations  may  be  given.  The 
public  notices  in  the  stations  at  Brussels  used  to  be  in  two  languages 
— the  French  above  the  Flemish.  Not  long  ago,  they  were  all  taken 
down,  and  stuck  up  again  with  the  Flemish  above  the  French.  The 
Traveller's  Guide  used  to  be  published  in  two  editions.  Of  the 
French  edition  80,000  copies  were  sold ;  of  the  Flemish  3,000.  And 
it  is  alleged  that,  in  order  to  get  even  the  3,000  sold,  the  French 
edition  was  allowed  to  go  out  of  print  before  the  demand  was  ex- 
hausted. To  please  the  "Flamingants,"  the  French  edition  has  been 
abolished,  and  a  single  edition  has  been  put  out  in  both  languages, 
naturally  larger,  more  complicated  and  less  convenient. 

Let  us  turn  from  the  question  of  interference  with  the  manage- 
ment of  an  undertaking  belonging  to  the  public  at  large  in  the 
interests  of  a  single  political  party,  and  note  a  result  of  State  man- 
agement of  a  quite  different  kind.  Alongside  of  the  Belgian  State' 
railway  system  proper,  there  is  a  secondary  system  of  light  railways, 
under  a  management  organized  as  a  company,  of  which,  however, 
the  State  and  the  various  local  authorities  are  practically  the  only 
shareholders.  In  this  secondary  system  the  State  has  only  about 
fifty  per  cent,  interest,  whereas  it  has  a  hundred  per  cent,  interest 
in  the  State  railways  proper.  The  Minister  of  Public  Works  has 
control  of  the  tariffs  of  the  light  railways,  and  exercises  that  control 
to  prevent  the  light  railways  from  reducing  their  tariffs — though  it 
may  be  to  the  interest  both  of  the  light  railways  and  their  customers 


*See  the  regulations  put  out  in  March,  1910,  which  are  to  be  found  in 
the  report  of  M.  de  Bue  on  the  Railway  Budget  of  1911  in  the  "Documents 
Parlementaires." 

61 


to  do  so — whenever  it  is  feared  that  competition  injuriously  affecting 
the  State  railway  revenues  might  result. 

One  Word  more  as  to  Belgium.  The  same  political  party  has, 
as  has  been  said,  retained  control  of  the  railways  in  Belgium  for 
32  years.  But  shortly  before  the  war  a  Commission  was  appointed 
to  inquire  into  the  whole  subject.  No  report  has  been  officially 
published.  But  it  is  a  matter  of  public  knowledge  that  the  Com- 
mission had  determined  to  recommend  that  the  construction  of  new 
lines  should  in  future  be  entrusted  to  a  contractor  and  not  left  in 
the  hands  of  the  Railway  Administration,  that  they  were  seriously 
considering  the  grant  of  a  lease  of  the  State  railways  to  an  operating 
company,  and  that  certain  very  influential  persons  were  in  favor 
of  the  adoption  of  this  policy. 

Conclusion 

President  Hadley  has  summed  up  the  conclusions  of  the  Italian 
Railway  Commission  based  on  the  railway  experience  of  the  world, 
as  it  existed  35  years  ago,  as  follows : 

(1)  Most  of  the  pleas  for  State  Management  are  based  upon  the 
idea  that  the  State  would  perform  many  services  much  cheaper  than 
they  are  performed  by  private  companies.    This  is  a  mistake.    The 
tendency  is  decidedly  the  other  way.  *  *  *  The  State  is  much  more 
likely  to  attempt  to  tax  industry  than  to  foster  it. 

(2)  State  management  is  more  costly  than  private  manage- 
ment. *  *  * 

(3)  The  political  dangers  would  be  very  great.    Politics  would 
corrupt  the  railroad  management,  and  the  railroad  management 
would  corrupt  politics.  *  *  * 

In  the  foregoing  pages,  an  attempt — hampered  by  the  condition 
that  the  most  important  facts  of  contemporary  history  are  not 
always  those  that  can  be  most  readily  published — has  been  made, 
subject  to  strict  limitations  of  space,  to  bring  the  history  up  to  date. 
And  the  conclusions  of  the  Italian  Commission  still  seem  to  stand 
firm. 

The  essential  lesson  of  the  history  may  be  said  to  be  this :  It  is 
impossible  to  obtain  satisfactory  results  on  government  railways  in 
a  democratic  State  unless  the  management  is  cut  loose  from  direct 
political  control.  Neither  Australia  nor  any  other  country  with  a 
democratic  constitution — perhaps  an  exception  ought  to  be  made  of 
Switzerland — has  succeeded  in  maintaining  a  permanent  severance. 
The  Australian  Parliaments  have  loosened  their  hold  for  a  few  years, 
but  only  for  a  few  years.  In  France,  in  Belgium,  in  Italy,  Parlia- 
mentary interference  has  never  been  abandoned  for  a  moment. 

62 


ithout  imputing  a  double  dose  of  original  sin  to  politicians,  it  is 
easy  to  see  why  this  happens.  The  railways  belong  to  the  people. 
Parliament  is  the  authorized  representative  of  the  people.  It  seems 
therefore  to  the  ordinary  citizen  only  right  and  natural  that  Parlia- 
ment should  control  the  management  of  the  people's  railways.  And 
yet  facts  are  stubborn  things ;  and  the  facts  show  that  Parliamentary 
interference  has  meant  running  the  railways,  not  for  the  benefit  of 
the  people  at  large,  but  to  satisfy  local  and  sectional  or  even  personal 
interests.  They  show  further  that,  under  Parliamentary  manage- 
ment, it  is  easier  to  get  money  for  big  schemes  of  new  construction 
than  for  inconspicuous  day-to-day  betterments  and  improvements 
which  probably  would  produce  much  greater  public  benefit.  Some 
day  perhaps,  having  learned  wisdom  by  experience,  a  Parliament  and 
a  people  may  recognize  that  management  for  the  people  is  not  neces- 
sarily management  by  the  people ;  that  there  are  other  branches  of 
government,  besides  the  judicial  branch,  unsuited  for  popular  inter- 
ference ;  and  may  establish  a  permanent  State  railway  organization, 
/'with  its  own  board  of  directors,  with  its  own  separate  budget,  and 
entirely  independent  of  Parliamentary  control,  but  controlled  like 
any  private  company  by  a  judicially  minded  commission,  required 
also  like  a  private  company  to  earn  a  dividend  for  its  stockholders, 
the  people.  And  then  a  main  objection  to  Government  railways  in 
a  democratic  State  will  have  lost  its  force.  But  hitherto  no  Par- 
Hament  and  no  people  have  recognized  this  fact,  even  though  it 
stands  out  abundantly  clear  on  the  pages  of  railway  history. 


63 


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